But confidence remains low
Business conditions in Australia improved slightly in July, marking the first increase in five months, according to the latest survey by NAB.
The modest gain was driven by an uptick in the employment index, which rose by seven points. However, business confidence fell by two points, and forward orders remained weak, indicating ongoing challenges in the broader economic environment.
NAB chief economist Alan Oster (pictured above) noted that while business conditions rose by one point to +6 index points, they remain slightly below the long-term average.
“The improvement was due to a lift in the employment index, but trading conditions fell, and profitability was unchanged,” Oster said. “The fall in conditions is consistent with the slowdown in growth, but we expect the economy to grow more quickly in the second half of the year.”
The latest NAB Monthly Business Survey also revealed that business confidence declined across most industries, with the exception of construction and recreation and personal services. Confidence was particularly weak in the goods distribution sectors, with retail and wholesale trade both reporting negative trends.
Forward orders improved slightly, rising by two points to -4 index points, while capital expenditure increased by seven points to +6 index points. However, capacity utilisation fell sharply to 82.7%, although it remains above the historical average.
“There was a notable decline in capacity utilisation in July, which could suggest that supply and demand are moving back into balance,” Oster said. “This provides further evidence that the rebalancing the Reserve Bank of Australia is looking for is occurring.”
Inflationary pressures showed signs of easing, with purchase cost growth slowing to 1.1% and final product price growth remaining unchanged at 0.7%. Labour cost growth, however, increased to 2.5%, likely due to the rise in award and minimum wages in July following the Fair Work Commission’s annual wage review.
“The jump in labour costs is likely temporary and should fade in coming months,” Oster said. “Importantly, the sustained decline in final product price growth and the easing of purchase cost growth indicate that economy-wide inflationary pressures are gradually abating.”
In the consumer sectors, retail price growth fell to 0.9%, while prices for recreation and personal services rose to 1.6%, reflecting divergent trends at the industry level. However, Oster concluded that the broader message remains one of easing inflationary pressures across the economy.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
