However, confidence remains negative
Business conditions and confidence in Australia improved in September, according to the latest NAB Monthly Business Survey, though confidence remains in negative territory.
The survey revealed that business conditions rose to +7 index points, around the long-run average, with all three subcomponents — trading, profitability, and employment — improving. The employment index is now back above average. Meanwhile, business confidence increased by three points but remains below average at -2 index points, indicating persistent caution among businesses.
Gareth Spence, NAB’s head of Australian economics, noted that while some of last month’s decline in confidence was reversed, it remains particularly weak in the goods distribution industries, such as retail and wholesale. However, there was a notable improvement in confidence within the retail, and recreation and personal services sectors.
“The rebound in conditions was driven by manufacturing, recreation and personal services, retail, and wholesale,” Spence said. “Interestingly, as we think we are passing through the weakest point in economic growth for this cycle, business conditions have broadly tracked around average through mid-2024.”
Despite the recovery in conditions, the NAB Business Survey showed forward orders remained weak at -5 index points, suggesting pressure on future activity. Nonetheless, capacity utilisation held strong at 83.1%, well above the long-term average, and reported capital expenditure remained healthy at +8 index points.
“While conditions have trended lower over the past 24 months due to slowing growth, capacity utilisation remains high,” Spence said. “This is significant for the Reserve Bank of Australia (RBA), as inflation continues to be elevated, implying that the balance between supply and demand in the economy has not fully normalised."
Price pressures continued to ease in September. Labour cost growth slowed to 1.7% from 1.8% in August, and purchase cost growth declined to 1.2% from 1.6%. However, input costs remain higher than output prices, suggesting that business margins are still under pressure.
“Both labour and purchase costs growth are high but continue to trend lower, consistent with signs of easing in the labour market and a moderation in import price growth,” Spence said.
“Overall, the business survey points to some encouraging signs as the RBA attempts to come in for a soft landing. While we would like to see the easing in price growth maintained over coming months, and for conditions to hold up even if just at around average levels, for now the trends remain encouraging.”
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