AUS
NZ
UK
CA
USA
IND
Highlights
- Business confidence index rises to highest level since early 2023, marking a significant improvement.
- Sales remain strong, while inflationary pressures on input costs show signs of easing.
- Reserve Bank keeps interest rates steady, with potential for future rate cuts.
Australian business confidence surged in October to its highest point in nearly two years, driven by robust sales and easing pressures on input costs, according to a National Australia Bank (ASX:NAB) survey released on Tuesday. This marks a positive turnaround for the economy, as businesses showed resilience in the face of challenging economic conditions.
The NAB’s survey, a key indicator of economic sentiment, reported that its business conditions index held steady at +7 in October, reflecting consistent business performance. Meanwhile, the more variable business confidence index jumped by seven points to reach +5, the highest level since early 2023.
Gareth Spence, NAB’s Head of Australian Economics, noted the significance of this uptick in confidence. “Confidence spiked in the month after an extended period of below-average readings,” he remarked. “While this is only one month of data, it is an encouraging sign, especially as we observe a tentative improvement in forward orders.”
Sales and Profitability Strong, But Employment Intentions Dip
The survey revealed several key insights into business performance in October:
- Sales: Businesses experienced a one-point increase in sales, pushing the sales index to a strong +13, a level that indicates steady consumer demand.
- Profitability: The profitability index remained stable at +5, indicating that businesses have managed to maintain earnings levels.
- Employment Intentions: Although the employment intentions index dipped by two points to +3, overall hiring expectations remain positive.
The report noted that a separate consumer confidence survey by Westpac showed a second month of strong gains in November, partly due to optimism about the potential for reduced borrowing costs. The Reserve Bank of Australia (RBA) has kept interest rates steady at 4.35% for a full year, and market analysts believe that the RBA’s next rate adjustment is likely to be a cut, although that may not happen immediately.
Easing Cost Pressures Signal Gradual Decline in Inflation
One of the most encouraging findings from the NAB survey was a reduction in cost pressures, suggesting a gradual easing of inflation. Input costs grew at a slower quarterly pace of 0.9%, down from 1.3% in September. Labor costs, a significant factor in overall business expenses, also showed signs of relief, with growth easing to 1.4% from 1.9%. Additionally, product price growth decelerated slightly to 0.5% from 0.6%.
Spence pointed out that the survey aligns with other recent data indicating a slow but steady moderation in inflation. “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 the moderation,” he said.
The recent official measure of consumer price inflation reflected a sharp slowdown to 2.8% in the September quarter, a figure influenced partly by temporary government rebates on electricity bills. This data, combined with the NAB survey, points toward a potential shift in Australia’s economic trajectory as inflation eases.
