Australian business conditions flatline in May despite confidence rise

Business conditions in Australia eased further in May, falling to 0 index points, marking a continued decline from the average of +6 seen in September 2024. Employment weakened and profitability remained negative at -4 index points, according to the National Australia Bank (NAB).

“Our trend business conditions measure has fallen steadily since late 2024 despite the pick-up in activity over the past two quarters. Weak profitability is a key driver, which remains in negative territory,” said NAB chief economist Sally Auld.

Although business confidence rose by 3 points to +2, it remains below the long-run average in trend terms, especially in retail and wholesale sectors.

The employment index fell by 3 points in May to a new cyclical low, underscoring continued softness in labour demand. Capacity utilisation improved slightly to 82.3 per cent, partially reversing April's sharp decline. Labour cost growth remained strong at 1.7 per cent on a quarterly basis, but easing purchase costs (1.1 per cent) and slower final product price growth (0.5 per cent) reflected ongoing margin pressure. Retail prices remained unchanged at 1.2 per cent.

Across industries, retail and manufacturing posted the sharpest declines in conditions. Regionally, business conditions weakened in New South Wales, Queensland, Western Australia, and Tasmania. Victoria and South Australia continued to show the weakest performance, though conditions in Victoria appear to have stabilised.

“Overall, business conditions remain weak. If this continues in coming months, it will be difficult for confidence to rise from current levels. We will watch whether there is a more sustained softening in labour demand, with the employment index easing to below average levels,” said Dr Auld.

ALCHEMPro News Desk (HU)