Business confidence declined in May in the face of higher inflation and rising interest rates, although a new survey also shows new orders perked-up in the month.
The National Australia Bank May business survey showed confidence fell four points to six index points, holding just above its long-term average.
“Businesses are facing a new environment of higher inflation, rising interest rates, and risks to global growth,” NAB chief economist Alan Oster said.
“However, confidence is still at a fairly robust level all things considered.”
Business conditions also eased two points to an index of 16 points, remaining well above average after a strong first few months of the year.
The trading and profitability sub-indices both eased, while employment edged higher.
Mr Oster said across the states and in most industries conditions remained relatively strong, although construction was one area of concern.
“Profitability is under increasing pressure in construction, with the survey’s profitability index into negative territory, far below what we are seeing elsewhere,” he said.
But overall Mr Oster said forward indicators in the survey, such as a rise in new orders, suggest the underlying outlook for Australia’s economy remains positive,.
“Capacity utilisation is now around the record high levels seen just before the Delta outbreak in 2021, which should support investment and hiring over coming months,” he said.
In contrast, a separate survey showed while consumers appear to be preparing for one last hurrah, rising prices and interest rates are likely to dampen household spending.
The CommBank household spending intentions index made a partial recovery in May, rising by 2.9 per cent after falling in April due to public holidays in the month.
The index – which reflects CBA payments data, loan applications and publicly available search activity on Google Trends – increased across seven of 12 categories in May.
The gains included home buying, fitness and health, and transport, alongside falls in entertainment, travel, and insurance spending.
Increased home loan applications and housing searches on Google saw home buying intentions rise 14.8 per cent, which was still down 3.3 per cent from a year earlier and 13 per cent lower from the peak in March 2021.
“Higher prices and rising interest rates will impact household spending,” CBA senior economist Belinda Allen warned on Tuesday.
“We’re seeing early indicators of softness in CBA credit and debit card spending data, with discretionary spending on recreation, clothing and footwear, and household furniture and equipment, trending slightly down.”
CBA economists now expect the Reserve Bank of Australia’s cash rate to rise to 2.10 per cent by the end of 2022, from 0.85 per cent currently, after upwardly revising an earlier forecast of 1.60 per cent.
The bank also cut its economic growth forecast for 2022 to 3.5 per cent, from 4.7 per cent previously, and is predicting a 15 per cent drop in Australian house prices by the end of 2023.
