Wage claims 'not a problem' for most businesses

The National Australia Bank's latest quarterly survey shows that companies expect enterprise bargaining settlements over the next six months to deliver average increases of 3.3 per cent.

They expect to recoup 1 per cent of the higher labour cost through increased productivity.

"Employers think their wage increases are consistent with inflation remaining in the bottom half of the Reserve Bank's 2 to 3 per cent target band," NAB chief economist Alan Oster said.

Only 10 per cent of businesses say that wage costs are an important constraint on their profitability, while 44 per cent say the biggest thing holding down their profits is weak demand.

Mr Oster said that apart from the mining industry and the recreation sector, business conditions were weak.

However, companies had continued to hire and remained optimistic that employment growth would continue. "Business is still very reluctant to fire anybody and even if their trading conditions and profitability are difficult, they hope this is just temporary," Mr Oster said.

The number of firms reporting that availability of labour is a constraint on their output has risen from 42 per cent to 48 per cent since the September quarter. However, Mr Oster said this was a long way from the 72 per cent recorded in the months before the global financial crisis in 2008.

"Labour shortages are not yet being seen as a major issue. The thing that matters is demand."

Although most firms reported falling forward orders in the December quarter, as they did in the September quarter, business expects recovery over the course of this year, with 26 per cent more companies forecasting stronger conditions than those expecting further deterioration. Investment plans remain strong, with a net balance of 23 per cent of firms planning to lift their capital spending over the next year.

Business remains the most upbeat about the outlook in Western Australia, while even before the floods it was most pessimistic in Queensland.