Business confidence dips well below average after January uptick: NAB

Business confidence has fallen 6 pts over February and conditions remain stagnant despite forecasts for economic improvement over 2025.

The latest version of the NAB Monthly Business Survey has revealed a notable drop in business confidence throughout February, offsetting the improvement seen in January.

The survey highlighted a slight uptick in business conditions despite them remaining soft when coupled with falling confidence.

Confidence fell by 6 pts, which took it well below the long-run average and into negative territory, while forward orders remained steady at -3 index points, retail orders declined, and CAPEX was shown to have risen by 1 pt to +5 pts.

Alan Oster, chief economist at NAB, said the rise in business conditions was marginal, having increased by 1 pt in both trading and profitability sub-components.

Weak conditions in the mining industry improved slightly from January, while gains were seen in construction, transport and utilities and recreation and personal, Oster added.

“Conditions were largely unchanged in February. In trend terms, conditions remain strongest in the services sector but are now weakest in mining which has had a weak start to 2025,” he said.

“The lift last month was not sustained into February and is now well below average again. This was despite the improvement seen in Q4 GDP data and the RBA’s first rate cut, which suggests that businesses continue to be cautious about the outlook.”

The survey reflected a continued ease in capacity utilisation, which edged down to 81.9 per cent, remaining above the long-run average.

Oster said overall the survey suggested that activity measured continued to point to below-average growth and cost pressures were a step above output price which pointed to the ongoing challenges in the business sector, even though economic activity showed some improvement in H2 2024.

“Capacity utilisation continues to trend gradually closer to its long-run average. By industry, trend capacity utilisation is lowest in mining, manufacturing and wholesale, and strongest in services sectors which aligns with broader conditions by industry.”

Across the nation, conditions eased in all states except Victoria and Tasmania. Conditions were strongest in Queensland and Tasmania and weakest in Victoria and Western Australia. Confidence fell in all states.

Purchase cost growth rose from 1.1 per cent to 2.5 per cent; however, labour cost growth eased from 1.7 per cent to 1.5 per cent, which suggested that wage price pressures also continue to ease, according to Oster.

“Lingering cost pressures continue to put pressure on business profits, with profitability conditions remaining well below the long-run average. This is likely flowing through to weaker conditions and confidence measures.”