Business conditions improve in February

But confidence and forward orders remain lagging

Business conditions improve in February



February saw an uptick in business conditions as the economy showed signs of sustained resilience at the start of the new year, NAB reported in its latest monthly business survey.

The survey revealed a three-point increase in business conditions to +10 index points, slightly above the long-term average. Trading conditions and profitability experienced similar uplifts of four points, contributing to an overall improvement in business climate relative to historical norms.

NAB chief economist Alan Oster (pictured) said the recent uplift is a reversal of the declining trend observed since late 2023.

He noted the key roles of trading conditions and profitability in this resurgence but added that it is too early to say if the rebound is only temporary or the start of “a more meaningful turnaround.”

Despite easing business conditions, the retail and construction sectors were found to have experienced a downturn due to their exposure to higher interest rates.

“The story at an industry level is really quite mixed with some sectors still very strong and others under a lot of pressure,” said Oster.

Moreover, business confidence dipped slightly by one point to 0, indicating a below-average sentiment. Forward orders also declined slightly, with retail notably lagging at a -29 index point deficit.

However, capital expenditure saw a positive adjustment, rising four points to +7 index points, even as capacity utilisation experienced a marginal reduction to 83.4%.

The survey also highlighted ongoing concerns about inflation, with businesses reporting continued high costs for labour and materials. Notably, retail price growth surged to 1.4% on a quarterly basis, signalling that the path to curbing inflation may encounter further hurdles.

Oster underscored the complexity of the inflationary landscape, attributing some of the recent improvements to global supply chain enhancements. He cautioned against expecting a straightforward reduction in inflation.

“While we do expect inflation to return to the RBA’s target band in 2025, plenty of risks remain that could throw us off that course,” said Oster. “That is why we expect the RBA to take a cautious approach with rates to be on hold for most of this year.”

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