Australian business confidence improved in September, supported by firmer sales and profit gains, but most firms remain hesitant to expand or invest.
The latest NAB Business Survey showed the headline business conditions index held steady at +8, while business confidence lifted 3 points to +7.
“Conditions were only marginally more positive compared to historical norms,” Westpac senior economist Mantas Vanagas (pictured left) said.
The data indicated that gains in sales and profitability were offset by a decline in employment. Business sales rose three points to +16, profitability was up one point to +6, while the employment index slipped two points to +3.
“Businesses will need to see more evidence of a recovery in domestic demand before showing greater willingness to commit to major investments,” Vanagas said in Westpac analysis.
Despite the solid headline results, the survey revealed lingering caution among businesses.
“The forward orders index dipped by three points after being at the long-term average in August, hinting at a possibility that the firmer trading conditions might be short-lived,” Vanagas said.
Companies also reported higher stock levels, with the inventory index up four points to +10, while capital expenditure weakened slightly (down 2 points to +7). Vanagas said this suggests firms are waiting for stronger demand signals before committing to larger investment plans.
Across the September quarter, business conditions rose three points from June, while forward orders stayed subdued at -1. The capex index ticked higher, hinting that investment may be stabilising.
Auld said the data reflected an economy still adjusting to mixed signals.
“Official data showed the economy grew at its fastest pace in two years in the June quarter as consumer spending finally responded to lower borrowing costs and cooling inflation,” she said.
“But with inflation data likely to surprise on the upside in Q3, uncertainty remains.”
“Firm business conditions in September gave businesses more confidence about the future, with the headline confidence index rising by 3 points to 7, offsetting a 4-point decline in the previous month,” Vanagas said.
However, consumer sentiment remains weak, with Westpac-MI data showing households turning more pessimistic amid higher inflation indicators, strong house price growth, and changing interest rate expectations.
Inflation still above target despite easing costs
Vanagas said inflation pressures persisted, with input costs rising modestly and output prices up 0.8% in the quarter – consistent with annual inflation slightly above the RBA’s 2-3% target range.
NAB’s data also showed retail prices lifting to 0.7% from 0.5%, while labour cost growth eased to 1.5% from 1.6%, pointing to softer wage pressures.
“This would be consistent with an annual inflation rate just outside the RBA’s 2-3% target range,” Vanagas said.
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