Overview

Both business confidence and conditions rose in the month. While confidence remains in negative territory and below average, conditions rose back to around the long-run average. All three subcomponents of business conditions picked up in the month, with the employment index now back above average. Despite the easing trend in conditions over the past 24 months and very weak forward orders through 2024, capacity utilisation continues to track well above average and reported capex also remains healthy, suggesting that despite the economy tracking through a period of slow growth, the level of activity has remained somewhat resilient. Encouragingly, price pressures also continue to abate with both survey-wide and retail sector price growth continuing to trend lower in the month. However, input cost growth remains higher than output price growth, suggesting that business margins are being pressured.

Comments from NAB Head of Australian Economics, Gareth Spence

Both business conditions and confidence rose 3pts in September. Business confidence remains below average and in negative territory at -2 index points. Business conditions are now back around average at +7 index points – with all three subcomponents rising in the month.

“Some of last month’s fall in confidence was reversed in September but confidence remains well below average” said NAB Head of Australian Economics Gareth Spence. “Confidence remains weakest in the goods distribution industries – retail and wholesale – though we did see an improvement in retail alongside recreation & personal services in the month.”

“The rebound in conditions in the month was driven by manufacturing, recreation & personal services, retail and wholesale.” Said Mr Spence. “Interestingly, as we think we are passing through the weakest point in economic growth for this cycle, business conditions have broadly tracked around average through mid-2024.”

However, forward orders remained weak at -5 index points suggesting there may continue to be some pressure on activity going forward though capacity utilisation remains well above average at 83.1%. Reported capex also remained healthy at 8 index points in the month.

“While conditions have trended lower for around 24 months as growth has slowed, capacity utilisation remains well above its long-run average” said Mr Spence. “This remains an important dynamic for the RBA where, despite slow growth, inflation remains too high suggesting that the balance of supply and demand in the economy is yet to fully normalise”.

Input costs pressures continue to ease. In September, labour cost growth was 1.7% in quarterly equivalent terms, down from 1.8% in August, while purchase cost growth eased to 1.2% from 1.6%.

“Input cost growth remains elevated, with both labour and purchase costs growth still high but both continue to trend lower. This is consistent with what we are seeing in the labour market, with wage growth looking to have passed its peak, and the moderation in import price growth”.

“Overall, the business survey points to some encouraging signs as the RBA attempts to come in for a soft landing. While we would like to see the easing in price growth maintained over coming months, and for conditions to hold up even if just at around average levels, for now the trends remain encouraging”.

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