Australian business activity regained momentum in December, according to the latest survey from National Australia Bank (NAB), with measures of sales and profits showing notable improvement while capacity constraints remained elevated.
The NAB index of business conditions increased by 2 points to +9 in December, reversing part of a decline from the month before when the series fell 3 points. The survey's more volatile gauge of business confidence inched up 1 point to +3.
Sales were a standout in the month, rising 3 points to a historically strong +16, a sign that consumer demand had strengthened toward the end of the year. Profits also improved, with the profits index adding 3 points to reach +7. Employment held steady at +4, indicating continued hiring momentum across firms surveyed.
Prices moved slightly higher over the three months to December, while capacity utilisation eased only marginally to a still-elevated 83.2% - a level NAB characterised as high. Those readings suggest limited spare capacity across the business sector.
"The survey is consistent with the view that momentum improved in the Australian economy in the fourth quarter of the year," said NAB Chief Economist Sally Auld. "Elevated capacity utilisation in the economy is broad based."
NAB highlighted that cyclically sensitive sectors recorded improvements: retail and manufacturing both showed gains in business conditions and employment. Across the economy, trend activity was strongest in services sectors, according to the bank's survey results.
The survey's timing intersects with mounting market attention on the Reserve Bank of Australia, which holds its first policy meeting of the year next week. There is intense speculation that the RBA could opt to raise its current 3.6% cash rate as policymakers weigh persistent inflationary pressures.
The NAB survey paints a picture of an economy with improving fourth-quarter momentum but constrained by high utilisation and lingering price pressures. The combination of stronger sales and profits with limited spare capacity is likely to be closely watched by markets and policymakers as they assess near-term monetary policy moves.