Overview

Business confidence rose sharply in the month and is now back around average and at its highest level since early 2023. The improvement in confidence was relatively broad-based in the month. Business conditions tracked sideways at an around-average level in the month. In trend terms, outside of mining, conditions are strongest in the services sectors, while the goods sectors are weaker (and negative in manufacturing and retail). Input costs growth – both labour and purchase costs – eased further in the month. Output price growth tracked sideways at a benign rate, though retail price growth rebounded in the month. Overall, the survey continues to paint a picture of resilient activity levels in the economy and a trend easing in price and cost pressures, though with capacity utilisation still high it will likely take more time before inflation pressures normalise. Indeed, capacity utilisation declined by a relatively sharp 0.7ppts in the month but remains well above its long run average.

Comments from NAB Head of Australian Economics, Gareth Spence

Business confidence rose sharply to an around average 5 index points in October, after hovering around 0 index points (and well below business conditions) for an extended period. The improvement in confidence was broad-based across industries in the month.

“Confidence spiked in the month after an extended period of below average reads” said NAB Head of Australian Economics Gareth Spence. “While it’s just one month this is an encouraging sign alongside a tentative improvement in forward orders.”

Business conditions were unchanged at +7 index points in the month, continuing to track at an around average level. Trading conditions edged up in the month to +13 index points, while profitability was unchanged at +5 index points. The employment index edged down in the month.

“Conditions continue to track at around average”, said Mr Spence. “Therefore, while we know growth has slowed to its slowest rate in around 30 years over the year to June, excluding COVID lockdown periods, the business survey continues to tell us that activity has held up.”

Capacity utilisation declined 0.7ppts to 82.5% in October but remains well above the long run average of 81.3%. Forward orders improved slightly in the month, driven by an improvement in the retail sector – though it remains weak and below average.

“Capacity utilisation continues to gradually trend lower, but remains elevated despite a period of slow growth in the economy” said Mr Spence. “Capacity utilisation will continue to be an important dynamic for the RBA and the rate outlook as the economy continues to come into better balance”.

Input cost pressures eased further in the month. In October, labour cost growth eased further to 1.4% in quarterly equivalent terms, down from 1.9% in September, while purchase cost growth eased to 0.9% from 1.3%.

“Input price growth continues to moderate but does remain a little elevated”. Said Mr Spence. “However, how this translates into broader inflation in the economy is evolving. It appears that businesses are less able to pass on cost pressures as consumer demand growth slows”.

Output price growth edged down to 0.5% in quarterly equivalent terms. Of the consumer facing sectors, retail price growth rebounded in the month to 1.1% while recreation & personal services price growth tracked sideways at 0.9%.

“We continue to watch the survey closely – not just for the forward looking and activity indicators, but also capacity utilisation which will be key in the evolution in price pressures for the economy”, said Mr Spence. “The survey, like other price indicators, continues to suggest an ongoing gradual easing in inflation pressure, but also that there is still some way to go in in the inflation moderation when we look at the consumer facing components”.

For more information, please see the NAB Monthly Business Survey (October 2024)