NAB Business Confidence Rises to -14 but Capacity Use Hits 2025 Low
1h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
australiabusiness-confidence
Fazen Markets Editorial Desk
Collective editorial team · methodology
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National Australia Bank announced on 9 June 2026 that its monthly business confidence index rose to -14 in May, a nine-point improvement from the deeply negative -23 reading in April. Business conditions held steady at +3, indicating stable trading environments despite the poor sentiment. The modest improvement offers little optimism as cost pressures and global uncertainty kept confidence firmly negative across all industries. Concurrently, capacity utilisation dropped below 82%, marking its first reading that low since early 2025, a sign of an economy losing momentum. As of 02:45 UTC today, the Australian dollar traded at $0.762, reflecting subdued market reaction to the mixed domestic data.
The Reserve Bank of Australia maintains a delicate easing bias amid persistent inflation concerns. The central bank's cash rate target stands at 3.85%, following a pause in its tightening cycle in late 2025. Global energy price volatility continues to complicate the domestic inflation picture, putting pressure on input costs for Australian businesses. The drop in capacity utilisation is a critical signal, as readings above 82% are historically associated with rising price and wage pressures. A sustained decline suggests slack emerging in the economy, which could ease inflation but also points to weakening demand. This data arrives as markets assess whether the RBA's next move will be a cut or another extended hold.
The National Australia Bank survey for May 2026 shows a clear but shallow recovery in sentiment against a backdrop of economic softening. Business confidence improved to -14 from -23, yet remains firmly negative and well below its long-run average. The business conditions index was unchanged at +3. The profitability sub-component registered as the weakest relative to its historical average. Capacity utilisation fell to 81.7%, a significant drop from the 83.2% recorded in April and the first sub-82% reading since January 2025. This metric is now 1.5 percentage points below its post-pandemic peak. Cost pressures eased only slightly, with purchase cost growth decelerating from 1.8% to 1.6% quarterly. The data contrasts with ASX 200 performance, which is up 4.2% year-to-date, showing a disconnect between corporate sentiment and equity market pricing.
The data reinforces a view of an Australian economy muddling through rather than deteriorating sharply. Sectors reliant on domestic capital expenditure, like industrial machinery and construction materials, face headwinds from falling capacity use. Consumer discretionary stocks may see pressure if weak profitability translates into hiring pauses or wage growth moderation. A counter-argument is that slightly easing cost pressures, if sustained, could improve corporate margins in the second half of 2026, particularly for retailers. Positioning data shows institutional investors have been net sellers of Australian small-cap equities while maintaining overweight positions in large-cap mining stocks, which are more exposed to global demand. The Australian 10-year bond yield, currently at iii.65%, has drifted lower in recent sessions, pricing in a lower probability of near-term RBA hikes.
The next major domestic catalyst is the Australian Bureau of Statistics' monthly Consumer Price Index release on 28 June 2026. This will test whether the slight easing in business cost pressures is translating to the consumer basket. The RBA's next monetary policy meeting is scheduled for 7 July 2026, where the board will assess this confidence and capacity data. Markets will watch the Westpac-Melbourne Institute Consumer Sentiment Index on 11 June for confirmation of the weak mood spreading to households. Key levels for the Australian dollar include the $0.755 support zone; a break below could signal markets pricing in a more dovish RBA path. The ASX 200 index faces a technical test at the 7,800 level, its 100-day moving average.
Negative business confidence typically precedes slower hiring, restrained wage growth, and reduced business investment. For the average Australian, this can mean fewer job opportunities, especially in sectors like manufacturing and professional services, and less upward pressure on wages. However, if lower capacity utilisation leads to reduced inflationary pressures, it could eventually allow the RBA to cut interest rates, lowering mortgage repayments for homeowners with variable-rate loans. The immediate effect is a more cautious economic environment.
The May 2026 reading of -14, while negative, is far from historical extremes. During the Global Financial Crisis in 2009, the index plunged to -30. During the initial COVID-19 lockdowns in April 2020, it hit -66. The current level is more consistent with a mid-cycle slowdown than a recessionary plunge. The long-run average for the series is approximately +5, meaning the current reading is about 19 points below trend, indicating significant pessimism but not panic.
Capacity utilisation measures the proportion of potential economic output being used. It is a leading indicator for inflation and investment. When utilisation is high (typically above 82-83%), businesses face bottlenecks, leading to price increases and prompting capital expenditure to expand capacity. When it falls, as seen in this report, it signals slack in the economy, reducing inflationary pressures and discouraging new investment. This makes it a key input for central banks like the RBA when assessing the output gap.
The data shows a fragile Australian business sector where improved sentiment fails to mask underlying economic momentum loss.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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