Business confidence continues to build, but also presents a complex cost squeeze.

    Business conditions have continued to strengthen on the back of a long-awaited recovery in recreation and personal services, according to the latest NAB Monthly Business Survey. Business confidence remains relatively high across industries and in most states, and while confidence eased, it remained above its long-run average.

    “Strong business conditions, including trading conditions and profitability, show that the economy is faring quite well and so far, demand is holding up in the face of higher inflation,” said NAB chief economist Alan Oster.

    Capacity utilisation continues to rise and forward orders are still well above their long- run average, supporting the positive outlook. “Conditions in most industries now look fairly strong, although conditions in construction, transport and utilities are being held down by negative levels on the profitability index, a sign that cost pressures could be beginning to take a toll on margins,” said Oster.

    Cost pressures continued to build, with labour cost growth up to three per cent and purchase cost growth hitting 4.6 per cent (in quarterly terms), both new highs. But the survey noted output price inflation eased, with final product prices rising 1.7 per cent and retail prices up 2.1 per cent. “These rates of price growth remain high in the history of the survey and the strength in underlying costs suggests inflationary pressure is likely to continue building over coming months,” it said.

    All households saw their living costs spike in the March quarter, according to the Australian Bureau of Statistics (ABS). Its Selected Living Cost Indexes (LCIs), which reflect changes over time in the purchasing power of household after-tax incomes for the March quarter 2022, showed increases across all household categories — aged pensioners (+2.3 per cent), pensioners and beneficiaries (+2.2. per cent), other government transfer recipients (+2.1 per cent), self-funded retirees (1.8 per cent) and employees (+1.7 per cent). ABS head of prices statistics Michelle Marquardt says price increases in food and non-alcoholic beverages drove the impact on aged pensioners given their comparative grocery spending. “Automotive fuel and food prices contributed to higher living costs for all Australian households, with fuel prices increasing by around 35 per cent and food prices rising by more than four per cent in the past 12 months.” In the March 2022 quarter, the transport CPI increased by 13.7 per cent over the same quarter in 2021.

    The ABS also found that over the three months to April 2022, 57 per cent of businesses experienced increases in the cost of doing business with 21 per cent reporting costs had increased to a great extent. Most had seen increases to the cost of fuel or energy (83 per cent) and the cost of products or services used by the business (82 per cent). However, 52 per cent of businesses did not increase their prices as a result, according to ABS head of industry statistics John Shepherd. “For those that did increase prices, 42 per cent had partially passed on costs and six per cent had fully passed on the increases to customers.” Thirty-nine per cent of businesses had made changes to operations or processes and 17 per cent had renegotiated payment terms with customers and suppliers.

    Amid intense federal election debate over the quantum of wage rises, Council of Small Business Organisations Australia CEO Alexi Boyd noted that businesses are already facing higher wage costs with the increase in superannuation guarantee to 10.5 per cent and removal of the $450/month threshold for workers to be paid superannuation from 1 July.

    National Reconciliation Week runs from 27 May– 3 June. Ahead of the May federal election outcome, Reconciliation Australia (RA) in its Roadmap for Reconciliation 2022 called for the incoming government “to be brave and ambitious” when it comes to First Nations affairs.

    For Australia to move forward on its reconciliation journey, RA said an incoming Australian government must, within the next parliamentary term, work in partnership to:

    • Support the aims of the Uluru Statement from the Heart
    • Work in partnership with First Nations people to progress and co- design implementation of representative models identified as part of the Indigenous Voice co-design process
    • Work with First Nations organisations to appropriately fund and meet the targets and outcomes under the priority reforms of the new National Agreement on Closing the Gap.

    Constructive initiative

    A new culture standard has been proposed to help boards tackle urgent productivity and performance challenges facing the Australian construction sector. The Construction Industry Culture Taskforce, an initiative of construction firms and the NSW and Victorian governments, will provide a framework for clients and contractors to address productivity and performance obstacles in the sector, which employs 1.2 million people.

    Chaired by Gabrielle Trainor AO FAICD, the taskforce is focused on addressing excessive work hours, which result in high rates of turnover, absenteeism and stress-related leave; lack of diversity; and wellbeing. Research shows stress levels and suicide rates among construction workers are double the national average.

    More information:

    Skills search

    Finding ways to tackle the chronic labour shortages persist as a top issue for directors in AICD’s first half 2022 Director Sentiment Index, with six in 10 directors nominating it as a top challenge, up five per cent from the 2H21 survey.

    It also revealed many boards were having difficulty finding candidates with the right skills, with 59 per cent saying this was a problem. The second most common challenge was finding candidates comfortable with the time commitment expected of directors, with half those surveyed saying this was a blocker in recruitment.

    Roy Morgan surveyed 1737 respondents across Australia 24 Feb–10 Mar 2022.

    More information here

    Net zero global benchmarks 2022

    Climate 100+, an investor-led initiative formed after the 2015 Paris Agreement, has published its second round of Net Zero Company Benchmark Assessments. These measure the progress of 166 companies backed by 700 investors responsible for US$6.8 trillion in assets. The results show year-on-year improvements.

    • 69% of companies have committed to achieve net-zero emissions by 2050 or sooner across all/some of their emissions footprint
    • 90% have some level of board oversight of climate change
    • 89% have aligned with Taskforce on Climate-related Financial Disclosures recommendations
    • However, Climate 100+ identified a failure to integrate climate risk into accounting and audit practices and an “alarming” lack of progress on critical indicators
    • 17% have set medium-term targets aligned with limiting global warming to 1.5oC
    • 17% have produced quantified decarbonisation strategies — but more than half did not meet any criteria
    • 0 companies met all criteria on capital expenditure alignment, due to a gap in corporate reporting
    • Climate 100+ warned investors will escalate pressure on its focus companies

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