NAB analysts say supply chain disruption falling short of worst-case fears for Aussie businesses
Australian businesses are proving more resilient than expected, with the latest NAB Monthly Business Survey for May showing that the cost shock from the Middle East conflict has been less damaging to supply chains than initially anticipated – although confidence remains firmly in negative territory.
Business conditions held steady at three index points in May, while confidence lifted 10 points to -14 – still weak, but a clear improvement on April's reading. The survey, conducted across approximately 507 businesses in the non-farm sector, points to an economy that has slowed but not stalled.
Gareth Spence (pictured, left), NAB's head of Australian economics, said the numbers reflect a gradually cooling environment rather than a sharp deterioration. "The shock has clearly been significant, but so far it doesn't look like the disruption to supply chains has been as bad as we had feared," Spence said.
He continued: "Conditions have eased since early 2026 but remain positive, and they are not as weak as confidence suggested a month ago. That supports the view that economic growth has slowed since late 2025 but is still moving. We see the same signs in our transactions data, where spending growth has slowed but not fallen away."
Costs easing, but pressure persists
One of the clearer bright spots in the May survey was the easing of price and cost pressures – though they remain elevated. Purchase cost growth, which had spiked sharply in April to 4.5% in quarterly equivalent terms, pulled back to 2.6% in May. Labour cost growth edged down marginally to 1.5%, while product price growth roughly halved to 0.9% and retail price growth eased to 1.5%.
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Spence flagged that despite the improvement, the profitability outlook remains a concern. Of the three conditions sub-components – trading, employment, and profitability – the latter is furthest below its long-run average.
"Confidence has lifted off a very low base, but it's still weak and margin pressures are likely to remain a factor for businesses in the months ahead, even with some easing in costs growth this month," he said.
What it means for the RBA
Spence also pointed to the broader implications of the survey for the RBA's policy path, noting that the economy appears to have cooled from an earlier period of overheating.
"Overall, for the RBA, an economy that was overheating appears to have cooled somewhat, with conditions and capacity utilisation trending lower this year as rates have risen. Weak business confidence, and how it flows through to investment and hiring decisions, will remain a key theme in the months ahead," he said.
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Capacity utilisation fell to 81.9% in May – dropping below 82% for the first time in 12 months – a further signal that the economy is operating with a little more slack than it was late last year. Forward orders rose five points and capital expenditure lifted six points, offering some counterbalance to the broader softness.
Businesses adapting on the ground
Away from the macro numbers, NAB group executive business and private Andrew Auerbach (pictured, right) said customer conversations are telling a story of pressure and resilience sitting side by side.
"We've had more than half a million conversations with our customers since late February and what they're telling us is conditions are tough and cost pressures are real. But so is the resilience of Australian businesses, and we can see them actively adapting and pivoting," Auerbach said.
Their adaptability and resilience will surely be tested if the RBA decides to hike rates again next Thursday, 18 June, although market consensus currently has the central bank holding the cash rate at 4.35%.
