Statement on Monetary Policy – August 2025Box B: Insights from Liaison

Information from liaison suggests that business conditions have remained broadly stable over recent months. Firms generally report little effect on their operations from the large increases in US tariffs and the related policy uncertainty. They also report that demand continues to grow at a moderate pace, supported by ongoing modest growth in household consumption, a slight improvement in residential construction activity and a steady level of business investment. Headcount growth has slowed over the past year, and a large share of contacts expect their headcount to remain stable over the year ahead. Liaison contacts report that generally their cost pressures have eased a little. However, wage pressures have not moderated to the extent firms had expected. Contacts are focused on cutting costs, though they note that, for a variety of reasons, lifting productivity remains challenging. Firms expect their selling price growth to remain steady over the period ahead.

Overall sentiment among liaison firms has been little changed, despite elevated uncertainty around international trade policies.

Most firms report no significant impact from US tariff announcements and are much more focused on domestic conditions; a small number have adjusted their operations or delayed investments. Some firms have secured lower prices from Chinese suppliers, while others have seen their suppliers pass on the higher costs of trade disruption. Some firms have also taken action to mitigate risks to supply chains. Indirect effects – such as the potential for dampened consumer sentiment and impacts on export demand – are cited as concerns, but not ones with any material impact at this stage. Non-trade geopolitical conflicts have been discussed more frequently in liaison meetings, but most firms do not expect material effects on their operations that cannot be managed.

Consumer spending remains cautious, with a strong focus on value and price.

Firms report that consumers remain cautious in their spending, which they see as constraining a more pronounced lift in consumption growth, particularly for mid-tier retailers. Most retailers have reported ongoing moderate sales growth since the beginning of the year. Some non-food retailers have experienced stronger sales growth in recent months, driven by targeted discounting, promotional campaigns, and new product launches. Retail firms generally view the recent improvement as reflecting only a modest uplift in underlying retail demand. While price-sensitivity remains a recurrent theme, some retailers have noted consumers appear a little more willing to purchase higher priced offerings if they believe it presents good value. Domestic tourism contacts have noted that consumers are still choosing more affordable holiday options and spending less than usual on meals, tours and entertainment. Some community services organisations note some levelling off in demand for their services, although demand remains elevated given the high cost of living and housing.

Investment has been little changed, although residential builders have become a little more optimistic.

Firms generally expect the level of their investment to remain relatively steady over the year ahead. Firms with above-average investment intentions are focused on automation, digital transformation, data centres and progressing infrastructure projects. There is growing interest in the use of artificial intelligence (AI), though many firms say they are at an early stage and still trying to work out the most suitable use cases for their firm. Investment in office vehicles, industrial property and office space is expected to soften further. Some firms continue to cite high construction costs and subdued demand as constraints weighing on their investment intentions.

Residential building firms report that conditions have improved slightly. New detached home sales have trended higher over the past quarter, supported by lower interest rates and end-of-financial-year promotions. That said, home sales remain at low levels and firms expect that affordability constraints will limit the extent of recovery. Build times have continued to decline in some states as labour availability improves, alleviating sequencing issues such as coordination of tradespeople, with a growing number of firms reporting a return to pre-pandemic build times. High-density residential construction activity remains constrained by elevated costs relative to selling prices, although many luxury and mixed-use developments continue to be viable.

Contacts’ changes in their staffing are consistent with moderating employment growth.

Over recent months fewer firms have been increasing their headcount. Many firms are keeping overall headcount steady and taking a ‘wait and see’ approach to hiring, though some have offset higher staff numbers in revenue-generating areas with reduced headcount elsewhere. A common theme is that firms are trying to do ‘more with less’ as part of a general focus on cost control.

Labour availability has improved, though many contacts still find it challenging to fill positions. Voluntary staff turnover has declined to more normal levels and recruitment activity has slowed, reflecting less job switching.

Firms in liaison expect employment growth to be below average over the year ahead, with a large share of contacts intending to keep employment levels stable (Graph B.1). Factors cited by firms include that there is little change in demand or production levels, that they are awaiting clearer demand signals before adjusting staffing numbers, or that they are looking to achieve more with their existing staff by improving processes or making greater use of technology.

Firms expect growth in their selling prices to remain around current levels in the year ahead.

Liaison suggests that wages growth has been little changed in recent months (Graph B.2); firms had expected some slowing in growth. Many firms overestimated the pace at which labour market conditions would ease and also underestimated the recent award rate outcomes. However, most firms still expect wages growth to be slower than the prior 12 months or stable over the year ahead.

Firms report that increases in their non-labour costs have outpaced growth in their selling prices (and the CPI) for some time. However, firms’ non-labour cost growth has eased a little in recent months and an increasing number of firms are saying that they expect their cost growth to converge with CPI inflation over the year ahead. Some firms are now reporting slower growth or even outright declines in insurance costs, following a couple of years of significant increases. In construction, growth in costs has also moderated compared with a year ago.

The share of firms that have reported their selling prices growing at above average rates has trended lower (Graph B.3). Retailers continue to use discounting to support sales volumes, but the share of firms reporting unchanged prices or price declines is still lower than average over the prior decade.

Firms expect growth in their selling prices to be steady over the year ahead. Many firms remain focused on margin improvement. Homebuilders have reported subdued price growth recently but expect their price growth to strengthen over the next 12 months as demand picks up and construction costs start to rise more quickly.

Agricultural firms expect that elevated demand and ongoing drought conditions will add to food price pressures. Drought conditions have become more severe in many parts of Australia over recent months, which firms report is weighing on the outlook for crop and livestock production. Demand for cereal and pasture hay for livestock has surged, which has led to a sharp increase in their price as inventories have run down; high yields of grain in other regions are somewhat offsetting these effects. Contacts report that dairy production has declined due to increased culling in response to drought conditions in Victoria and flooding in northern New South Wales, which may lead to higher dairy prices. Lower livestock supply and strong international demand is keeping beef and sheep prices elevated. Slightly offsetting these upwards pressures on dairy and meat prices, egg supply is expected to improve as affected farms recover from avian flu outbreaks.

Firms have found it challenging to lift productivity.

Contacts have reported in a survey on productivity that regulation and labour availability were key barriers to lifting their productivity growth over the past five years (Graph B.4).¹ Firms said that the complexity, cumulative volume and frequency of change in regulation has been hard to manage, particularly for smaller firms. The large share of firms identifying employee skills and availability as a barrier over the recent period cited the significant turnover in the labour market, much higher wage expectations and the inability to attract specific skills when needed as factors weighing on productivity.

Some firms that participated in the survey viewed technology as important for driving efficiencies and productivity gains, though some noted that not all technology enhances productivity. Many firms also flagged the ongoing fast pace of growth in software prices as a challenge to fully capturing productivity gains from new technology investments. Further, firms noted that more staff may be needed to facilitate the adoption of technology, particularly in the transition phase. Although there remains considerable uncertainty around the potential impacts of AI, most survey participants anticipated that such technologies will be labour saving in the future and that AI will facilitate a change in their workforce from lower to more highly skilled roles.

Endnotes

More detail on the survey results will be released in a forthcoming RBA Bulletin article. 1