Wage costs remain the top issue affecting business confidence, a NAB survey found. (AAP: Jeremy Ng)
In short:
Several major surveys show Australian business budgets are being squeezed by rising costs and weaker demand.
While Deloitte warns that many firms may respond by cutting costs, NAB's business survey shows many are still finding it hard to find enough of the right workers.
What's next?
The January jobs data will be released on February 20, with some analysts warning of a seasonal spike in unemployment.
Australian businesses are being squeezed with lower revenues and higher costs, particularly their wages bill — and firms are readying themselves to slash costs.
That is one message from a recent dump of reports from consulting firm Deloitte Access Economics, investment bank JP Morgan and the National Australia Bank.
Deloitte says businesses are now showing the pain of recent low levels of economic growth.
Australia's gross domestic product (GDP) grew at just 0.8 per cent in the 12 months to the September quarter, according to official data.
"The slowdown in the Australian economy has hit business revenues," Deloitte Access Economics economist Sheraan Underwood said.
"This has particularly been the case for businesses reliant on discretionary consumer spending such as those in the hospitality and retail trade industries."
"At the same time, operating costs continue to increase.
"Labour costs are above their long-run average and are expected to remain so through 2025, while non-labour costs such as energy and insurance are rising."
Mr Underwood said, in an environment where it was difficult for most firms to raise prices much further, they were looking at other ways to stay profitable.
"Businesses are now responding by implementing cost-cutting measures," he said.
Bosses still see difficulty finding workers
However, National Australia Bank's latest assessment of Australian business conditions reveals reasons why workers may not be the first cost that firms cut.
The bank's latest Quarterly Business Survey asked hundreds of firms to gauge how they were doing and what pressures they were facing, as well as how they felt about the future.
The survey revealed that employers were still reporting that it was difficult to find the right workers.
"Wage costs remained the top issue affecting business confidence," NAB noted.
"Pressure on margins, demand and availability of labour remain near to the top of the [worry] list."
That does not mean there is not a real risk unemployment could spike when the next data, collected in January, are released by the Australian Bureau of Statistics on February 20.
Analysts at investment bank JP Morgan warn that forecasting the unemployment rate has become difficult because of "marginal attachment" to the labour force, which has increased over the summer period in recent years.
A big share of those marginally attached to work over the summer are a large cohort of people who left a job towards the end of 2024 but are still yet to start a new role for which they have already been hired.
"This volatility makes it hard to have strong conviction, but we think that the impulse from marginal attachment in January will be largely captured in the utilisation numbers (for example, average hours or employment), though another jump in the unemployment rate cannot be ruled out," JP Morgan economist Tom Kennedy said.
"A more volatile set of labour numbers will make it difficult to discern underlying conditions around the turn of the year and add a further layer of complexity to the monetary policy outlook.
"With that in mind, GDP growth remains weak, inflation is now on a sustainable trajectory back toward target and unemployment, in our view, is still likely to drift a bit higher in 2025, which should underpin an easing bias."
NAB survey points to continued disinflation
While cost pressures remain elevated, they are not getting worse and, because demand is weak, NAB's survey suggests businesses do not expect inflation to re-accelerate in 2025.
"Price growth measures mostly eased in [the three months to December 2024]," the bank noted in its report.
"Easing cost pressures and the stabilising of business conditions, if sustained, may be a sign that businesses are now passing the trough in sluggish growth."
NAB says this paves the way for lower interest rates this year.
"However, uncertainty around the extent of the consumer recovery and the timing of rate cuts may continue to weigh on both business conditions and confidence in 2025."
CreditorWatch chief economist Ivan Colhoun said NAB's assessment of the labour market pointed to fewer Reserve Bank interest rate cuts.
"This suggests the labour market will remain broadly favourable for job seekers and that the RBA does not need a rapid or large series of interest rate cuts," he said.
'Uncertainty' weighing on investment plans
Deloitte Access Economics is reporting business "uncertainty" more broadly remains elevated, potentially dampening household spending growth as well as business investment plans that could boost economic growth and productivity.
It says its Economic Policy Uncertainty Index for Australia has more than doubled from a recent low in early 2024.
"This has continued a longer-running trend which has seen the average level of uncertainty increase after key economic disruptions such as the global financial crisis and pandemic," Deloitte economist Sheraan Underwood said.
This, Deloitte says, could weigh on Australia's economic growth, which is already well below average.
"Uncertainty has a negative effect on economic growth by delaying household spending and business investment," he cautioned.
"These types of economic decisions are based on expectations about the future.
"This suggests that policymakers seeking stronger economic growth should work to minimise uncertainty.
"Greater transparency, well-designed institutions and strong communication can help to better guide market expectations.
"Households typically consider their future income prospects and financial situation before spending, while businesses invest inline with the anticipated demand for the products and services they provide."
