Business research

Monthly business survey: March 2022

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Economic conditions improved in March and confidence also strengthened. Trading conditions and profitability have increased markedly, suggesting that demand remains strong and employment has also increased. The improvement was largely driven by the retail sector, which saw conditions rise 23 points, along with leisure and personal services and finance, business and real estate. Confidence jumped in the transport, construction, leisure and personal services sectors, and leading indicators also strengthened overall with capacity utilization up to 83.1%. In all states, WA has seen a significant improvement in conditions with the full reopening of the border and conditions and confidence are now quite strong in all jurisdictions. Overall, conditions and confidence are now back around levels last seen in the pre-Delta rebound, although activity is more than back to pre-Covid levels. Cost growth accelerated further during the month, with labor cost growth reaching 2.7% in quarterly terms and purchasing cost growth up to 4.2% – the two registering considerably higher rates than at any other time in the survey’s history. However, companies appear to have been able to pass on at least some cost pressure, with prices also rising at their fastest pace in survey history at 2.3%. The escalation in price growth includes prices in the retail sector, which rose 3.7% in quarterly terms, which likely supported margins and helped explain the very strong increase in the index profitability of the sector. The continued escalation in price growth over the past few months suggests that a strong first quarter CPI reading is likely when released later in the month and, based on the monthly trend, could well continue to develop in the second quarter.

Trading conditions rose 9 points in March to +18 index points, the biggest one-month jump since June 2020. Trading conditions and profitability strengthened strongly, with trading conditions up 13 points to +24 index points and profitability up 8 points to +13 index points, and employment also improved.

“An increase in economic conditions headlined a very strong survey in March,” said Alan Oster, chief economist at NAB Group. “Companies reported very strong business conditions and a strong increase in profitability, indicating that demand continues to hold up as the economy rebounds from Omicron and growth picks up.”

“The retail sector was responsible for much of the improvement in conditions, and there were also strong gains in finance, business and real estate and in leisure and personal services,” Mr. Oster said. “This indicates that household consumption continues to grow strongly as consumers are undeterred by rising inflation, at least so far.”

“As far as states are concerned, the strongest result has been in Western Australia where it looks like the end of COVID-related border restrictions has really helped improve conditions,” Mr Oster said. “However, conditions were on the rise in all states with a strong improvement in Victoria as well as South Australia and Tasmania.”

Business confidence rose 3 points in March to +16 index points, continuing its steady rise since the start of the Omicron outbreak in December. Futures orders continued to strengthen, up 3 points to +12 index points, while capacity utilization also edged up to 83.1%.

“Business confidence continued to improve in March, with little evidence of a negative impact from events in Ukraine,” Oster said. “The outlook has also strengthened in terms of forward orders, indicating continued economic growth over the coming months.”

Measures of cost and price growth in the survey hit record highs during the month. Growth in purchasing costs reached 4.2% in quarterly terms, while growth in labor costs reached 2.7%. Price growth also reached 2.3%, with retail price growth increasing to 3.7%.

“Costs are rising at a record rate in survey history,” Oster said. “Purchasing costs have hit record highs with high oil prices adding to existing supply chain issues, and labor costs are also rising as companies hire more workers on a very competitive labor market. These cost pressures are very pervasive across all industries.”

“Importantly, businesses have had no trouble passing on rising costs to consumers, with prices – including retail prices – also rising at record rates,” Oster said. “The survey price measures differ from the official measures in a significant way, but we still expect very strong inflation in the first quarter and probably the second,” Oster said.

“Overall, the results depict a very strong rebound, driven by strong consumer demand,” Mr. Oster said.

For more information, please see the NAB Monthly Business Survey (March 2022)