Australian Business Conditions Tumble in September Amidst Olympics Disruptions

The latest National Australia Bank (NAB) monthly business survey revealed that Australian business conditions took a significant tumble in September, largely due to the disruptions caused by the Olympics. Despite robust confidence levels, the total business conditions index dropped from plus-four to minus-seven points, with large falls in trading conditions and profitability across various industries, particularly in construction, manufacturing, and retail. The Olympics appeared to have changed spending patterns, particularly in retail and production, with forward orders and capacity utilisation declining significantly.

Key Takeaways:

• The total business conditions index fell from plus-four to minus-seven points in September, marking a significant decline.
• Trading conditions and profitability decreased across a broad range of industries, with construction, manufacturing, and retail being the worst affected.
• The Olympics disrupted spending patterns, particularly in retail and production, leading to a significant decline in forward orders and capacity utilisation.
• Capacity utilisation dropped by more than two per cent to 78.25, the largest monthly decline on record, which was "almost certainly" associated with the Olympics.
• The decline in manufacturing profitability pointed to large increases in production costs associated with the GST and higher oil prices.
• Recreational and personal services was the only sector to show strong activity levels, possibly due to the Games.
• Price pressures remained subdued, with the prices of final products increasing by 0.72 per cent on a quarterly basis.
• Purchase costs rose by 2.1 per cent on a quarterly basis, reflecting the impact of the lower dollar and higher oil prices.
• Wage prices increased by 1.26 per cent on a quarterly basis.
• Business confidence strengthened, with the index increasing by eight points, driven by ongoing strength in services, manufacturing, and mining.
• Construction confidence, however, remained gloomy.
• NAB revised its forecast for official interest rates to "on hold."

Statistics:

• The total business conditions index dropped from plus-four to minus-seven points in September.
• Capacity utilisation decreased by more than two per cent to 78.25.
• Forward orders decreased significantly, with construction leading the way.
• Stocks increased in the retail and wholesale sectors.
• Price pressures remained subdued, with the prices of final products increasing by 0.72 per cent on a quarterly basis.
• Purchase costs rose by 2.1 per cent on a quarterly basis.
• Wage prices increased by 1.26 per cent on a quarterly basis.
• Business confidence strengthened, with the index increasing by eight points.

Sources:

• Australia Pulse - Sydney, Oct 10, 2022.
• National Australia Bank (ASX:NAB) monthly business survey.