Australia’s business activity remains strong in October, sentiment bleak

SYDNEY, Nov 8 (Reuters) – Australian businesses reported strong sales and profitability again in October, even as rising costs and a drop in forward orders hit confidence, which could point to a slowdown ahead.

The National Australia Bank (NAB) (NAB.AX) survey on Tuesday showed its business conditions index fell 1 point to +22 in October, still well above its long-term average.

The volatility gauge of confidence fell 5 points to 0, below its long-term average.

“Consumers continued to spend despite headwinds from inflation and interest rates, and that strength appears to have continued into October,” said Alan Oster, chief economist at NAB.

“Overall, the survey suggests that despite continued strong demand, businesses are increasingly wary of the potential for a future slowdown.”

While the Reserve Bank of Australia (RBA) has raised interest rates by a total of 275 basis points to a nine-year high of 2.85 per cent, business activity has beat all expectations in a matter of months, the NAB survey showed.

The tightening hit consumer confidence hard, but spending was well supported with unemployment near a five-year low of more

The NAB survey continued to show the resilience of demand, with its sales indicator slipping 6 percentage points and still very strong at +31, well above pre-pandemic levels.

Businesses are running smoothly, with capacity utilization just below the all-time high of 85.8%.

Profitability edged up 1 point to +22, while the employment index fell 3 points to +14, still high from a historical perspective.

Labor costs fell slightly this month, but both production costs and retail prices rose.

“October’s strong price growth reinforces our expectation that inflation will continue to pick up strongly in the fourth quarter,” Oster said. “Retail price growth rose again in October, suggesting that commodity-side inflation remains a key challenge.”

Reporting by Wayne Cole; Editing by Christopher Cushing

Our Standard: The Thomson Reuters Trust Principles.

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