Economy January 26, 2026

Australian Business Conditions Improve in December as Sales and Profits Rise, NAB Survey Finds

Stronger activity lifts key indices but high capacity utilisation and hints of persistent inflation increase pressure ahead of next RBA meeting

By Marcus Reed
Australian Business Conditions Improve in December as Sales and Profits Rise, NAB Survey Finds

A National Australia Bank survey showed business conditions in Australia strengthened in December, driven by gains in sales and profits. While confidence edged higher and employment remained positive, elevated capacity utilisation and rising price measures suggest the economy may be nearing its operating limit ahead of the Reserve Bank of Australia's upcoming policy meeting.

Key Points

  • NAB's business conditions index rose 2 points to +9 in December, after a 3-point fall in the prior month - impacting broad economic indicators and corporate planning.
  • Sales jumped 3 points to a robust +16 and profits increased 3 points to +7, while employment remained at +4 - relevant for retail, manufacturing, and services sectors.
  • Capacity utilisation remains high at 83.2% and price measures ticked up over the three months to December, factors that bear on central bank policy and inflation monitoring.

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.

Risks

  • Elevated capacity utilisation suggests limited spare capacity, which may amplify inflationary pressures and affect interest-rate-sensitive sectors like housing and investment.
  • Rising price measures combined with strong sales and profits increase the likelihood of tighter monetary policy at the RBA meeting next week, posing risks for borrowing-dependent businesses.
  • Concentration of activity gains in services and cyclically sensitive industries such as retail and manufacturing could leave other sectors vulnerable if momentum shifts.

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