Updated September 12, 2017 14:54:14

Photo: Business confidence tumbled in August despite very strong trading conditions. (Supplied: ABC Splash)

Despite trading conditions holding near record highs, Australian business appears to have had a sudden crisis of confidence.

The respected NAB monthly business survey found confidence suddenly slumped last month, to be below its long-term average for the first time since mid-2016.

NAB chief economist Alan Oster said the sharp drop in business confidence this month was somewhat concerning, although the deterioration may prove to be short lived.

"For those indicating deterioration in confidence, the biggest concerns appear to be customer demand, government policy, as well as cost pressures — both energy and wages."

Mr Oster said while most industries appeared to be performing well, retail remained a concern with retail conditions languishing in negative territory.

"We will be watching this trend closely as household consumption is a notable point of difference between our relatively subdued growth outlook and the RBA's more sanguine forecasts, and will be key to the economy's sustained return to trend growth," he said.

Employment continues to boom, profitability softening

Business conditions over the month rose by one index point to +15, well ahead of the long-term average of 5 points but short of the record 20 hit a decade ago, just before the GFC hit.

Employment registered the biggest gain of the three key measures of business conditions, while profitability and trading conditions deteriorated.

Victoria and South Australia drove most of the gains in conditions, although they were largely offset by a large fall in New South Wales while Queensland and Western Australia also experienced more subdued conditions.

Mr Oster said the positive news was forward looking indicators from the survey, such as forward orders, were relatively upbeat.

"Improvements in labour market indicators point to further falls in the unemployment rate, helping to mount a case to bring forward RBA rate rises," he said.

"However, there are few signs of inflation or wage pressures in the official data as yet, while relatively downbeat consumer confidence is still a point of concern in light of poor retail conditions.

"Additionally, the previously emphasised hurdles to growth — elevated underemployment, an elevated Australian dollar, household debt and peaks in LNG exports and housing construction - remain firmly in place."

Topics: economic-trends, company-news, small-business, australia

First posted September 12, 2017 12:30:41