Business conditions dip below zero for the first time since 2020

NAB's closely watched survey has turned negative for the first time since the pandemic. This time the culprit is a cost squeeze, and it is eating into profits.

Australian business conditions have slipped into negative territory for the first time since the depths of the COVID-19 lockdowns. NAB's quarterly business survey for the September quarter, released on 24 September 2026, put conditions at -2 index points, the first negative reading since September 2020. Confidence actually improved in the quarter, rising 8 points, but remains deeply pessimistic at -11.

NAB's monthly survey had already sounded the alarm. In August 2026, conditions fell 5 points to -1, their lowest level since August 2020, while business confidence fell 2 points to -8.

The index measures what firms report about their own trading, profitability and hiring. A reading above zero means more businesses say things are good than bad. Below zero, the pessimists outnumber the optimists.

This time the problem is margins. Costs have been climbing faster than businesses can pass them on, and the gap is now showing up in the bottom line.

"Cost growth has been running well ahead of product price growth for almost six months, and we are now seeing those pressures flow through more clearly to profitability and business conditions," said Gareth Spence, NAB's head of Australian economics.

The August numbers show how wide the gap has become. Purchase costs grew 2.3 per cent in quarterly terms while product prices rose just 0.8 per cent. Profitability fell 10 points to a new post-COVID low. The quarterly survey tells the same story, with sales margins down a further 4 points to -20, their weakest since June 2020.

"Renewed margin pressure was a key development in the quarter," said NAB chief economist Sally Auld. The damage is spreading. Conditions fell in six of the eight industries surveyed in August, led by construction, mining and manufacturing. Victoria and Western Australia recorded the sharpest falls, both down 13 points.

There is one bright spot. The employment index slipped only 1 point to +3 in August, which means firms are still, on balance, adding staff. That fits the broader economy, which grew 0.4 per cent in the June quarter according to the Australian Bureau of Statistics. Growth is slow, but it has not stalled.

A single month's survey can be noise, but two NAB surveys pointing the same way is a trend. Businesses caught between rising costs and customers who will not pay more have two options: lift prices or cut costs. Neither is good news. Higher prices keep inflation sticky, and cost cutting usually starts with hours and hiring. Employment is the last index still holding up, and we expect it to follow profitability lower over the coming months. If you work in construction, manufacturing or any business that sells on thin margins, expect budgets to tighten and new roles to be scarce into early 2027.