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Businesses trundling along, despite consumer caution


Australian businesses are still shaking off higher interest rates, price pressures and increasingly cautious consumers.

Conditions for running a business have been trending well above average despite a slowing economy, according to NAB's monthly surveys.

The August report showed business conditions picking up two points, to 13 index points, thanks to improvements in all three components - trading conditions, profitability and employment.

The index also revealed a boost in indicators that point to future performance, such as forward orders and capacity utilisation.

Business confidence, another forward-looking measure, also improved two index points, although some industries were feeling more optimistic than others.

The business community may be reasonably upbeat, but consumers remain troubled.

The Reserve Bank's decision to keep interest rates on hold for three months in a row has not been enough to coax consumers out of their cautious state, according to the monthly index assembled by Westpac and the Melbourne Institute.

The consumer sentiment index for September sank a little to 79.5 index points, marking the longest stint below the 100 neutral mark since the recession of the early 1990s.

A consumer confidence weekly index collated by ANZ and Roy Morgan also came in lower, despite the September cash rate call and a resilient growth report.

CommSec economist Craig James said the disconnect remained clear between consumer confidence, and business confidence and conditions.

"Business conditions are above 'normal' levels basically because the job market remains strong and migration continues to lift," he explained.

"So spending has continued - albeit at a more cautious pace."

Mr James said Australian firms were "muddling through nicely" but lacklustre forward orders and confidence levels were reasons for caution.

"Much will depend on the lagged impact of rate hikes on consumer spending, the Chinese economy recovery and fiscal policy initiatives from the Albanese government to spur continued spending on capital and equipment," he said.

The business survey also included prices data, which showed labour cost growth easing to 3.2 per cent in quarterly equivalent terms after a spike in July.

NAB chief economist Alan Oster said the surge in labour costs in July had likely been influenced by minimum and award wage increases that kicked in at the start of that month.

Despite the moderation, labour costs were still growing faster than the 2.4 per cent quarterly print in June.

"On the other hand, purchase cost growth remains elevated despite the improvement in supply chains, possibly reflecting energy cost pressures," Mr Oster said.

Purchase cost growth held steady at 2.9 per cent quarterly growth, with selling price growth softening to 1.7 per cent.

Despite the slowdown, it was still well above the one per cent low in June. 

The bank's economists expect inflation to stay elevated throughout the September quarter.