Australian business confidence edged higher in May but remains deeply negative, as a partial easing in cost pressures offered some relief without resolving the structural pressures on the economy.
The NAB Monthly Business Survey, conducted across approximately 507 businesses from 23 to 30 May, recorded confidence rising 10 index points to -14 — a rebound driven largely by mining, wholesale, and transport and utilities sectors that had posted the weakest reads the previous month.
Despite the improvement, confidence sits 18 points below its long-run average and remains negative across every industry, reflecting the sustained impact of global uncertainty and domestic cost pressures. Business conditions were unchanged at 3 index points — below the long-run average — with employment, trading conditions, and profitability all having softened since February.
Westpac economist Luka Belobrajdic (pictured) noted that the survey captured early reactions to the federal budget and recent Middle East developments, and that consumers continue to share businesses' deep pessimism, with cost-of-living pressures a clear concern for many households.
The most encouraging development in the May data was a meaningful moderation in cost growth.
Purchase cost growth recorded its sharpest monthly fall on record, dropping 1.8 percentage points to 2.6% in quarterly equivalent terms — though it remains 1.4 percentage points above its long-run average, reflecting supply chain risks still flowing through from the Middle East conflict.
Labour cost growth also eased modestly, falling 0.2 percentage points to 1.5%. Consistent with those softer input costs, final product price growth nearly halved to 0.9% — also its largest single-month fall on record — though still historically elevated relative to the long-run average.
The profitability sub-index moved into negative territory, falling to -1 and sitting 6 points below its long-run average — signalling that higher input costs continue to compress business margins even as headline prices ease.
Beyond costs, the broader activity indicators tell a similar story of easing momentum
Capacity utilisation fell to 81.9% in May, its lowest level in 12 months, reflecting a clear easing since the onset of the Middle East conflict and consistent with softer underlying economic growth. While still marginally above the long-run average of 81.4%, the trend through the first half of 2026 points to a gradually cooling economy.
On a three-month average basis, business conditions have continued to ease through 2026, reinforcing the view that underlying momentum is fading — a reading consistent with subdued GDP growth in the March quarter national accounts.
There were some offsetting positives. Capital expenditure rebounded 6 index points to sit back above its long-run average, and forward orders improved 5 points to return to zero — more than unwinding the previous month's fall.
Victoria remains the only state with business conditions in negative territory on a trend basis, while mining and finance, property, and business services are leading on conditions nationally.
With conditions trending lower through the first half of 2026 and confidence still deeply negative, the RBA's next move remains a key variable for brokers and their clients.
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