Business conditions hit relatively healthy levels, yet capacity utilisation suggests interest rate cuts may pause, according to CreditorWatch’s economic analysis by Anneke Thompson
What’s happening: Australian business conditions improved to a relatively healthy level of plus 9 in October, driven largely by Western Australia, possibly linked to stronger commodity prices.
Why this matters: The NAB Survey’s inflation indicators, particularly moderating purchase costs and retail prices returning to levels consistent with the RBA’s target, support the central bank’s view that recent CPI surprises contained noise.
Australian businesses are reporting less negative conditions than six months ago, when tariffs brought about a significant temporary deterioration.
The NAB Survey shows overall business conditions improved to a relatively healthy level of plus 9 in October, continuing the lift evident since the Trump tariff lows in April and May.
WA drives improvement
The rise this month centred in Western Australia, possibly reflecting better commodity prices, though this did not translate through to conditions reported in the mining sector. The sector’s results can be quite volatile as it is not appropriately weighted in the NAB Survey. Queensland and NSW firms continue to report favourable business conditions, while Victorian firms, though more circumspect this month, have seen improvements since mid-2024.
Manufacturing is experiencing the weakest business conditions across sectors. Retail trade, wholesale trade, and finance, property and business services all showed improvements. Construction retained the improvement in evidence since the middle of last year, while transport and utilities dropped back sharply, as seems to be happening more regularly outside school holiday periods.
Inflation signals counter CPI
The NAB survey contains useful inflation indicators, which showed more positive news than the shock Q3 CPI result. Purchase costs moderated to the lowest level since COVID, and retail prices returned to levels broadly consistent with the RBA’s inflation target. This provides support to the RBA’s view that not all the Q3 CPI surprise was signal.
Capacity utilisation rose marginally further, increasing 0.1 percentage points to 83.4%. Given the RBA Deputy Governor’s recent speech noting the RBA is managing the current improvement in growth from the tightest level of capacity utilisation ever, this indicator will likely receive more attention in coming months. Currently, it is pointing to little in the way of further near-term interest rate cuts.
Consumer confidence surges
In a huge surprise, consumer confidence surged 12.8% in November, the strongest result in seven years excluding the COVID period. The result moved back into positive territory for the first time since 2022.
Optimism was broad based, with four of the five sentiment components jumping by 10% or more, including family finances over the next 12 months, the economy over the next year and next five years, and major household purchases.
Contradictory signals emerge
Contradictory signals emerged, as unemployment expectations rose sharply by 9.3%, and interest rate expectations deteriorated, despite the overall improvement in sentiment. The magnitude of the increase raises doubts about sustainability, requiring further confirmation next month.
Interpreting the data at face value, consumers seem more positive about the outlook across multiple factors despite also worrying more about the chances of becoming unemployed. Perhaps an explanation for the improvement is that prior negativity has lifted. However, at face value, it’s another positive signal on the economy and unhelpful for the likelihood of further interest rate cuts being delivered any time soon.
Forward orders, which have some leading qualities, rose to the highest level in two years, though that appears to have been driven by an anomalous increase in one sector from a very negative to very positive reading.
More: NAB Consumer Confidence
Note: This article is based on CreditorWatch Economic Briefs analysing the NAB Survey and consumer sentiment data for October and November 2025.
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