Consumer confidence in Australia is bouncing back, and this shift could have significant implications for ASX-listed companies. According to the NAB Monthly Business Survey for October 2024, business confidence has hit its highest level since early 2023, signalling a potential revival in economic activity and consumer sentiment.
This upswing comes as Australians begin to see some relief from price pressures, bolstered by easing input costs and resilient economic conditions. Let’s explore what this means for businesses, investors, and the broader market.
A Quick Look at the NAB Monthly Business Survey
The October survey revealed several key trends shaping the current economic landscape:
- Business confidence surged to 5 index points, a notable jump from recent months of stagnation.
- Conditions remained steady at +7 index points, reflecting stable trading and profitability.
- Capacity utilisation dipped slightly but stayed above its long-term average, highlighting sustained business activity.
According to Gareth Spence, NAB’s Head of Australian Economics, this is a promising sign. “Confidence spiked in the month after an extended period of below-average reads,” he noted, while acknowledging the need for more sustained improvements.
Why This Matters for ASX Shares
Consumer Confidence Drives Spending
Consumer confidence is a critical driver of economic activity, influencing everything from retail sales to housing and travel. When consumers feel optimistic about their financial future, they’re more likely to spend, which directly benefits consumer-facing sectors like retail, hospitality, and discretionary goods.
ASX-listed companies in these industries stand to gain as improved sentiment translates into higher sales volumes and stronger earnings growth.
Inflation Pressures Are Easing
One of the standout findings from the survey is the continued moderation of input costs. Labour cost growth eased to 1.4% in October, down from 1.9% in September, while purchase cost growth slowed to 0.9%.
For investors, this signals two things:
- Businesses may have more breathing room to manage margins without aggressive price hikes.
- The Reserve Bank of Australia (RBA) could have less pressure to maintain a hawkish stance on interest rates.
This double benefit of easing inflation and potential rate stability bodes well for sectors such as consumer staples, industrials, and financials.
Who are the Sector Winners and Losers?
Winners: Services and Retail
The services sector emerged as a clear winner in the October survey, showing resilience despite broader economic headwinds. Similarly, retail saw an improvement in forward orders, which could signal a robust holiday shopping season—a boon for ASX stocks in this category.
Lagging Sectors: Manufacturing and Mining
In contrast, the goods-producing sectors like manufacturing and mining continued to struggle, with negative conditions reported. For investors, this highlights the importance of diversifying portfolios to include sectors that are better positioned to ride the consumer confidence wave.
Is it a Green Flag for Investors?
Short-Term Optimism
While this is just one month of data, the upward trend in confidence is a green flag for short-term investment opportunities in ASX shares. Companies with strong consumer ties, particularly in retail and discretionary spending, could outperform as sentiment continues to climb.
Long-Term Stability
The report also reinforces the narrative of a slowly stabilising economy, where inflationary pressures are easing and business activity remains resilient. For long-term investors, this creates an environment ripe for strategic accumulation of quality ASX stocks.
The Road Ahead for the ASX
As confidence rebuilds, the spotlight turns to how companies and policymakers respond to these evolving dynamics. Businesses must balance growth strategies with cost management while the RBA navigates a complex inflationary landscape.
For ASX investors, the key takeaway is clear: keep an eye on sectors poised to benefit from improved consumer sentiment, but don’t ignore the broader economic factors that could influence market performance.
With sentiment on the rise, it’s shaping up to be an exciting time for Australian shares—offering opportunities for both cautious optimists and bold risk-takers alike.
