SYDNEY- Australian businesses reported another strong month for sales and profitability in October, though rising costs and a dip in forward orders took a toll on confidence that could presage a slowdown ahead.
Tuesday’s survey from National Australia Bank Ltd (NAB) showed its index of business conditions eased 1 point to +22 in October, still far above its long-run average.
The volatile measure of confidence eased 5 points to 0, leaving it below the long-run average.
“Consumers continue to spend despite headwinds from inflation and interest rates, and that run of strength looks to have carried on into October,” said NAB chief economist Alan Oster.
“Overall, the survey suggests that firms are growing wary of the potential for a slower period ahead, despite ongoing strong demand.”
The NAB surveys have shown business activity beating all expectations for some months even as the Reserve Bank of Australia (RBA) has lifted interest rates by a total 275 basis points to a nine-year peak of 2.85 percent.
That tightening has taken a heavy toll on consumer sentiment, yet spending has held up well helped by an unemployment rate near five-decade lows of 3.5 percent.
The NAB survey continued to show resilience in demand, with its measure of sales slipping 6 points to a still very strong reading of +31 and far above pre-pandemic levels.
Firms were running flat out with capacity utilization just off a record high at 85.8 percent.
Profitability edged up a point to +22, while the employment index dipped 3 points to +14 which was still high from a historical perspective.
Labor costs eased a little in the month but both producer costs and retail prices accelerated.
“Strong price growth in October reinforces our expectation that inflation will continue to rise strongly through Q4,” said Oster. “Retail price growth was higher again in October, signaling that goods-side inflation remains a key challenge.”
Meanwhile, a measure of Australian consumer sentiment sank in November as rising interest rates and surging inflation clouded the outlook for family finances and the economy, though actual spending has yet to follow.
The Westpac-Melbourne Institute index of consumer sentiment released on Tuesday slid 6.9 percent in November from October, to be down almost 26 percent on a year earlier. The index reading of 78.0 meant pessimists greatly outnumbered optimists and back to lows not seen since the start of the pandemic.
