Australian business confidence rebounds to normal levels after four months of consecutive gains, with forward orders positive for first time in two years.
What’s happening: Australian business confidence has returned to long-term average levels following four consecutive months of improvement, with forward orders turning positive for the first time in two years as employment and profitability drive gains.
Why this matters: The recovery signals a broader economic turnaround with previously struggling sectors like manufacturing and retail showing improvement, while easing cost pressures provide relief from inflationary headwinds affecting business operations.
Australian businesses have shaken off months of pessimism, with confidence returning to long-term average levels following four consecutive months of improvement, according to NAB’s latest Monthly Business Survey.
Business conditions rose 2 points in August driven by gains in profitability and employment, marking a significant turnaround from earlier in the year when economic uncertainty weighed heavily on business sentiment.
The August survey reveals a notable shift in business outlook, with NAB Chief Economist Sally Auld saying the results give confidence that the outlook for businesses continues to improve.
Confidence Rebounds
While business confidence fell 3 points in August, this follows four consecutive months of improving sentiment and leaves confidence close to long-run average levels.
“Both business confidence and conditions have normalised and are around their long-run averages,” Auld said.
The improvement reflects broader economic momentum, with employment conditions above their long run average while both trading and profitability subcomponents sit close to their averages.
Forward Orders Surge
Forward orders again rose, continuing the upward trend evident over the past year, with the series now in positive territory for the first time in two years.
This represents a crucial turning point for businesses, with forward orders reaching their highest level since May 2023 and now sitting around their long-run average.
Cash flow also rose for its third consecutive month and is now around its long-run average, providing businesses with improved financial flexibility.
Regional Revival
Cyclically sensitive sectors such as manufacturing and retail both registered improvement in confidence and conditions in trend terms.
Both business conditions and confidence in Victoria were positive in trend terms for the first time since May 2024, while conditions remain strongest in Queensland.
“Regions and industries in the economy which have faced headwinds in recent years have showed positive signs in recent months, adding to our confidence that the broader economy is on a better trajectory in the second half of the year,” Auld said.
Business conditions in trend terms either improved or remained steady across all states, with the largest gains occurring in South Australia and Western Australia.
The recovery echoes earlier concerns about business confidence levels, with research showing how economic uncertainty can significantly impact small and medium business sentiment and growth planning.
Cost Pressures Ease
Capacity utilisation rose to 83.1%, sitting 2 percentage points above the long-run average, while capital expenditure increased 2 points to +10 index points.
However, measures of costs and prices in August moderated slightly, providing relief for businesses grappling with inflationary pressures.
Purchase cost growth eased to 1.1% in quarterly equivalent terms, representing the slowest pace since 2021, while labour cost growth slowed to 1.5% and product price growth edged down to 0.6%.
“Capacity utilisation remains above average suggesting continued tightness in the supply/demand balance. That said, measures of costs and prices moderated in August,” Auld said.
The survey results support the view that the business outlook has become more positive in recent months, consistent with a better tone to official economic data.
For more information, see the NAB Monthly Business Survey (August 2025)
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