The latest NAB Business Survey for April 2025 reveals a mixed picture for Australian businesses, with some key indicators showing a slight downturn.
While business "confidence" saw a minor improvement, findings also showed that overall trading conditions "eased", underscored by a drop in profitability.
So, what does this mean for businesses and investors, especially those tracking the S&P/ASX 200 Index (ASX: XJO)? Let's dive straight in and see.
Key findings: Business confidence and conditions
NAB's Business Survey for April 2025 showed that business confidence improved by 1 point, landing at minus 1 on the business confidence index.
For reference, several measures, including conditions, trading conditions, profitability, employment, forward orders, and a handful of other metrics, combine to form the measure of business "confidence".
Despite the slight jump in conditions, overall confidence still remains in negative territory, according to the survey.
Findings varied across industries, with manufacturing, wholesale, construction, and finance seeing gains, while retail and wholesale sectors continue to see struggles.
What was interesting in my view was that there was no mention of either inflation or interest rates. On face value, these seem to bear less of an impact versus global uncertainty right now.
On the flip side, business conditions slipped by 2 points to a positive 2 index points. This, too, was largely due to a sharp decline in profitability compared to the prior period.
Commenting on the survey findings, the bank's chief economist, Dr Sally Auld, acknowledged the profit factor as a key factor underpinning the data.
The decline in business conditions was driven by weaker profitability. This aligned with higher purchase cost growth and weaker trading conditions reported in April.
What else was reported?
Initial findings suggest that business profitability looks to have weakened in April. But other survey metrics showed quite a change as well.
Capacity utilisation, a business productivity measure, fell to 81.4%, reversing the sharp rise seen in March, and hitting its long-term average – the first time it has done so in almost four years.
Dr Auld said this trend had been in situ since 2022.
We have seen capacity utilisation gradually ease since 2022 as the economy has slowly achieved better balance. We have also seen a similar dynamic in our quarterly survey, where labour and materials as a significant constraint on output have broadly eased.
There was also an uptick in purchase cost growth, which rose from 1.4% in quarterly equivalent terms to 1.7%, while labour cost growth held steady at 1.6%.
What's next for the Australian economy?
Looking ahead, the NAB Business Survey suggests that the Australian economy remains in a delicate position. While confidence has improved slightly, the overall business environment is still facing challenges.
NAB's Dr Auld said confidence and conditions are "weak relative to average levels". This could suggest the economy is "struggling" to maintain momentum from last year.
NAB itself urges investors to keep a close eye on both profitability and employment, where able.
Timing wise, the survey was fielded about three weeks after the initial 'Liberation Day' tariff announcements, which may explain the modest moves in headline business conditions and confidence, however, it would be historically unusual for the decline in Profitability to sustain without a decline in the Employment index, suggesting this dynamic bears close observation in coming months.
Time will tell what happens from here.
