But sluggish consumer demand continues to weigh on profitability
Business confidence in Australia rose to five index points in October, marking a significant rebound from nearly flat levels in recent months, according to the latest NAB Monthly Business Survey.
The improvement in sentiment was broad-based across industries, signalling a more optimistic outlook after a prolonged period of below-average confidence.
“Confidence spiked in the month after an extended period of below-average reads,” said Gareth Spence (pictured above), head of Australian economics at NAB. “While it’s just one month, this is an encouraging sign alongside a tentative improvement in forward orders.”
Despite the uptick in confidence, overall business conditions held steady at +7 index points, remaining around the historical average. Trading conditions edged up to +13 index points, while profitability was unchanged at +5 index points. However, the employment index showed a slight decline in October.
“Conditions continue to track at around average,” Spence said. “Growth has slowed to its weakest rate in about 30 years, excluding COVID lockdown periods, but the survey indicates that activity has remained resilient.”
The NAB business survey also showed a slight fall in capacity utilisation, down 0.7 percentage points to 82.5%, though it remains above the long-term average of 81.3%. Forward orders saw a modest improvement, primarily driven by gains in the retail sector, though overall order levels remain below average.
“Capacity utilisation continues to gradually trend lower but remains elevated despite a period of slow economic growth,” the bank economist said. “This measure will be crucial for the Reserve Bank of Australia and its rate outlook as the economy moves towards better balance.”
The survey also showed some easing in input cost pressures. Labour cost growth decreased to 1.4% in quarterly equivalent terms, down from 1.9% in September, while growth in purchase costs slowed to 0.9% from 1.3%.
“Input price growth continues to moderate but remains a bit elevated,” Spence said. “It seems businesses are finding it harder to pass on cost increases as consumer demand growth slows.”
Output price growth declined slightly, down to 0.5% in quarterly terms. Among consumer-facing sectors, retail price growth rose to 1.1%, while prices in recreation and personal services remained flat at 0.9%.
“We’re watching the survey closely for forward-looking indicators, capacity utilisation, and price pressures,” Spence added. “The data suggests a gradual easing in inflation pressures, though there’s still some way to go, especially in consumer-facing segments.”
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.
