Australian business conditions hold steady while confidence slips into negative territory.
Note - this survey was taken before the war. With the surge in energy prices confidence will not have improved.
Summary:
Australian business conditions held steady in February, while confidence slipped into negative territory.
The NAB business conditions index remained at +7, around its long-run average.
Business confidence fell sharply to -1 from +4, the first negative reading in almost a year.
Sales strengthened modestly, while profits held steady and employment eased slightly.
Labour and input cost pressures rebounded and retail price growth accelerated.
Investment plans and forward orders improved, suggesting underlying demand remains resilient.
Australian business activity remained broadly stable in February, but sentiment deteriorated as higher borrowing costs and growing uncertainty weighed on confidence.
The latest survey from National Australia Bank showed the business conditions index unchanged at +7, a level close to its long-run average and indicative of steady operating conditions across the corporate sector.
However, business sentiment weakened noticeably. The business confidence index fell five points to -1, slipping into negative territory for the first time in roughly eleven months. The drop likely reflects increasing caution among firms following the Reserve Bank of Australia’s recent interest rate increase.
In February, the RBA raised the cash rate by 25 basis points to 3.85%, marking the first rate hike in about two years as policymakers respond to persistent inflation pressures. Higher borrowing costs appear to have dampened sentiment even as business activity indicators remain relatively firm.
Within the survey details, sales improved slightly, rising one point to +12, while profits remained stable at +4. The employment index edged down to +3, suggesting labour demand remains positive but has softened marginally.
Cost pressures also showed signs of firming. Measures of both labour costs and input costs rebounded during the month, while quarterly growth in retail prices accelerated sharply to 1.0%, up from 0.3% previously. The pickup in price growth indicates inflation pressures remain present within the business sector.
Despite the weaker confidence reading, forward-looking indicators were more encouraging. Investment intentions rose to their highest level in three years, pointing to continued capital spending plans among firms. In addition, forward orders improved significantly, jumping to +6, which signals stronger demand prospects in the months ahead.
The survey period ran from February 23 to March 2, meaning it only captured the early stages of the escalating Middle East conflict and the initial rise in global energy prices.
Taken together, the results suggest Australian businesses are still operating under relatively solid conditions but are becoming more cautious about the outlook as interest rates rise and global uncertainties increase.
