11-Point Drop in Forward Orders to -12 Weighs on Australian Business Confidence
Key Facts
Australian business confidence fell in October, with the NAB index down one point to -15, while forward orders dropped 11 points to -12, signalling a weaker expected flow of business. NAB’s chief economist for Australia, Gareth Spence, said a fall in orders of this magnitude points to the risk of further weakness in trading conditions over the coming months. The reading came in a survey published on 10 November, after the index fell 4 points to -13 in September. Business confidence in September was 18 points below its long-term average and 22 points below its level a year earlier, according to NAB data. October’s decline adds to signs of pressure on businesses, with activity and profitability indicators falling despite an improvement in employment.
Business conditions fell one point to -2, the index’s lowest level since August 2020. Trading conditions also declined, down 4 points to -1, while profitability fell 2 points to -8. The latter two indices were more than 10 points below their averages, according to NAB. By contrast, the employment index rose 5 points to +4, returning above its long-term average. The figures point to a divergence between businesses continuing to increase employment and weakening trading conditions and profitability, while Spence said the drop in orders could weigh on business conditions in the coming months.
The decline in forward orders was broad-based, but construction and manufacturing led the fall, according to the survey details. The index reached -12 after dropping 11 points in October, leaving expectations for the flow of business more fragile in those two sectors. At the same time, capacity utilisation fell 0.1 percentage points to 82.1%, its third consecutive monthly decline. It nevertheless remained above its long-term average. Spence said a fall in orders of this magnitude “points to the risk of trading conditions weakening further over the coming months,” linking the warning directly to the path of orders.
Retail recorded the weakest confidence, business conditions and forward orders among the sectors covered by the survey. Meanwhile, retail price growth slowed 0.8 percentage points to 0.2% in October. For business costs, purchase cost growth rose 0.1 percentage points to 2.4% quarter-on-quarter, while product price growth eased to 0.6%. Taken together, the figures show weak demand in retail and a faster pace of purchase costs at a time when trading and profitability indicators are contracting. Labour cost growth also fell 0.3 percentage points, according to the survey details.
The business data follow the Reserve Bank of Australia’s decision to raise its cash rate target by 25 basis points to 4.85% on 3 November. In its November forecasts, the bank said headline and underlying inflation would remain above 3% until the end of 2027, before returning to the midpoint of the 2–3% target range in mid-2028. It also expected monetary policy tightening to keep GDP growth below its potential level, with spare capacity emerging in the labour market during 2027. In separate data, the Westpac–Melbourne Institute consumer sentiment index fell 2.7% to 78.2 in November, compared with 80.4 in October. The readings highlight falling consumer and business confidence after the rate increase, alongside the bank’s expectation that inflation will remain above target until the end of 2027.
Markets are awaiting the release of the minutes of the Australian Monetary Policy Board meeting on 17 November, followed by the board’s next meeting on 7 and 8 December. On the data front, the latest release of business indicators from the Australian Bureau of Statistics covered June 2026, while the bureau set 30 November for publication of the September release. These dates follow NAB’s October survey, which showed confidence and forward orders declining, while purchase costs continued to rise and product prices fell. The minutes are expected to provide further detail on the board’s discussions at its latest meeting, while the official September data will offer a broader reading of business indicators. The November reading of the monthly survey remains another gauge of the evolution of demand and trading conditions after the rate decision.