Confidence turns negative, with significant falls in several industries
Business conditions in August fell below average, while business confidence also declined, according to the latest data from NAB.
According to NAB chief economist Alan Oster (pictured above), Australian business conditions dropped three points to +3 index points last month.
“Business conditions have been trending downwards for a long time, and that continued in August after a brief uptick in July,” said Oster. “Conditions are now fairly clearly below average compared to the history of the survey, which reflects the weakness seen in the private sector broadly as the economy has slowed.”
The drop in conditions, the latest NAB Monthly Business Survey showed, was driven by a significant decline in the employment subcomponent, suggesting weaker trading conditions and profitability may now be affecting labour demand. Forward orders remained weak at negative levels, while capacity utilisation remained elevated and capital expenditure increased.
The employment subcomponent saw a sharp decline, falling six points to +1 index point after rising in July, indicating that the strong private sector labour demand experienced post-COVID may be tapering off.
Business confidence fell five points to -4 index points, with marked declines across sectors such as recreation and personal services, transport and utilities, construction, and manufacturing. Retail and wholesale sectors remain the weakest in both confidence and conditions, reflecting a shift in consumer demand away from discretionary spending.
Other indicators presented a mixed picture. Capital expenditure rose five points to +11 index points, and capacity utilisation increased slightly to 82.9%, indicating businesses are still operating at a relatively high level of efficiency. However, forward orders remained unchanged at -4 index points, signalling weak future activity.
In terms of pricing, labour cost growth eased to 1.7% in quarterly equivalent terms, down from 2.4% in July, while purchase cost growth rose to 1.6%. Retail price growth accelerated to 1.2% from 1.0%, outpacing broader output price inflation.
Oster attributed the drop in labour costs to the temporary impact of minimum wage adjustments in July, though noted that overall cost pressures remain high, especially in retail.
“While the economy has slowed for now, inflation remains too high for monetary policy to ease," said Oster. “Going forward, the labour market will be a key area of focus.”
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