Daily Commentary BY THE CURVE TEAM –

Covid Hits Businesses

14th of July, 2021

Unsurprisingly, recent covid outbreaks hit business confidence and conditions.

Confidence fell 9 points to 11 in June and conditions fell 12 points to 24. NSW business confidence was hardest hit, with the survey taken as there was an upswing in new cases.

QLD also fell heavily after recording cases over the month. The fall in conditions was driven by Victoria, with a sharp 18-point decline.

NSW, who have had lockdowns imposed in July will likely have a similar decline next month. The government announced employment compensation for lost hours, with payments of $600 a week for 20 or more hours lost work and $375 for 8-20 hours lost.

Businesses who can show declines in revenue of 30% or more will also be eligible for weekly grants. This should maintain confidence and conditions to sufficient levels which should allow a bounce back once lockdowns are unwound.

Despite covid acutely effecting businesses over June, both the conditions and confidence indices remain well above long run averages. Also, there were the first signs of price increases in the survey.

Retail prices were up 2.1% on a quarterly basis, rising from 1% last month and final product prices were up 1.5% on a quarterly basis from 1%. So far, evidence of price rises has been gradual, but far less obvious than in the US.

US inflation in June once again surprised markets, rising 0.9% for the month in the headline and core figures. The main drivers were related to the reopening of the economy and and short-term supply shortages but there was underlying strength.

A small business survey also released yesterday showed that 47% of businesses increased selling prices. A similar scenario to Australia is also pervasive, where there are many job vacancies, with 46% couldn’t fill positions.

Unlike Australia where there is little evidence of wage growth yet, the small business survey showed that 39% surveyed increased wages over the month. This will continue to put more pressure on the Fed to re-assess their monetary policy stance.

Josh Stewart

Associate - Money Markets