Australian companies will be disappointed even if the business is booming

SYDNEY (Reuters) – Australian businesses turned to a pessimistic outlook for the first time in November as inflation and higher interest rates hurt consumers ahead, while sales and profitability remained strong.

Tuesday’s survey from National Australia Bank Ltd (NAB) showed the business conditions index fell 2 points to +20 in November – still well above the long-term average.

But the confidence index dropped 4 points to -4, hitting negative territory for the first time since December last year. That means the gap between the two indicators was the widest of any month in the early days of the Covid-19 pandemic in March 2020.

“Overall, the survey suggests that consumers are still spending ahead of Christmas in the economy leading up to November,” said NAB chief economist Alan Oster.

“But as inflation and higher rates weigh on families, companies are increasingly pessimistic about the future, anticipating a slowing global economy and weaker consumer spending.”

NAB surveys showed that despite the Reserve Bank of Australia (RBA) raising interest rates by a total of 300 basis points to a 10-year high of 3.1%, business activity has been beating expectations for several months.

That tightening has hit consumer sentiment hard, but spending has been held in check, helped by a five-decade low unemployment rate of 3.4%.

The NAB survey continues to show the strength of demand, with the sales index slipping 2 points to a still very strong reading of +28 and above pre-pandemic levels.

Companies were ending flat with record capacity utilization at 85.2 percent.

Profitability fell 1 point to +20, while the employment index fell 1 point to +13, still high from a historical perspective.

Labor costs have picked up a bit in the month, and both manufacturing costs and retail prices have accelerated.

NAB’s Oster said sentiment across sectors, from retail to utilities, was negative.

“How soon these fears may or may not materialize remains to be seen, and we will continue to closely monitor spending trends in the coming months,” Oster said.

(Reporting by Stella Qiu; Editing by Kenneth Maxwell)