Australian business conditions deteriorated sharply in August, with the NAB Business Conditions Index falling from 4 to -1, a 5-point decline that pushed the measure into negative territory for the first time in six years and to its lowest level since August 2020. Business confidence also weakened from -6 to -8, while conditions fell across six of the eight industries surveyed and in every state except New South Wales and Tasmania.
The main pressure came through profitability as costs continued to outpace selling prices. Profitability dropped from 1 to -9, a 10-point fall to a new post-COVID low, while trading conditions fell from 9 to 4. Purchase-cost growth remained elevated at 2.3% q/q, even as product-price growth slowed to 0.8%, widening the squeeze on margins. NAB said the gap between costs and prices has persisted for almost six months and is increasingly feeding through into weaker activity and business conditions.
The survey was not uniformly weak. Employment edged only from 4 to 3, remaining more resilient than profitability or trading conditions, while forward orders improved from -3 to 0. Capacity utilisation nevertheless slipped from 83.1% to 82.5%. The overall picture is therefore one of slowing activity and mounting margin pressure rather than an outright collapse in labour demand, with the cost squeeze showing up in profits before jobs.
Data Summary
| Indicator | August | July | Change |
|---|---|---|---|
| NAB Business Conditions | -1 | 4 | -5 pts |
| NAB Business Confidence | -8 | -6 | -2 pts |
Business conditions turned negative for the first time in six years and fell to their lowest level since August 2020.
Components
| Component | August / Detail |
|---|---|
| Profitability | -9, down 10 pts |
| Trading conditions | +4, down 5 pts |
| Employment | +3, down 1 pt |
| Forward orders | 0, up 3 pts |
| Capacity utilisation | 82.5%, down 0.6 ppt |
| Purchase-cost growth | 2.3% q/q |
| Product-price growth | 0.8% q/q |
NAB highlighted the widening gap between input costs and selling prices as a key source of pressure on margins.
Key Takeaways
- Australian business conditions fell from 4 to -1 in August, entering negative territory for the first time in six years, while confidence deteriorated from -6 to -8.
- Profitability was the main weak point, plunging 10 points to -9, a new post-COVID low, as purchase costs continued to rise much faster than product prices.
- Cost growth remained elevated at 2.3% q/q, while product-price growth slowed to 0.8%, showing businesses are having difficulty passing higher costs fully to customers.
- Employment was comparatively resilient at +3, while forward orders improved to 0. The survey therefore points to margin pressure and softer activity before a clear deterioration in hiring.
- Weakness was broad, with conditions falling across six of eight industries and in every state except New South Wales and Tasmania.
