Business Conditions over December 2023 eased further, maintaining the slow downward trend that occurred over 2023. Business conditions are now at around their long run average. Given forward looking CreditorWatch Business Risk Index data, we expect the decline in business conditions to continue through early 2024, and for conditions to remain below the long run average at least until the cash rate starts to fall.

The good news is that price and cost growth declined significantly over the month. Quarterly labour cost growth reduced from 2.3 per cent in November to 1.8 per cent in December and purchase costs reduced from 2.5 per cent to 1.6 per cent over the same time period. This is good news for the inflation outlook, and means that businesses are reporting a noticeable moderation of labour and input costs. Capacity utilisation also fell to 82.7 per cent, down from 83.6 per cent. This measure is a very good forward indicator of unemployment, and means that the unemployment should rise slowly over the first half of this year, as the RBA has forecast.

Today’s data supports the CreditorWatch November Business Risk Outlook forecasts, where we reported a current business failure rate of 4.2 per cent is likely to rise to 5.8 per cent of all businesses by November 2024.