Australian business conditions eased in April as profitability weakened, forward orders slipped and firms’ spending plans took a hit, boosting the case for the Reserve Bank to cut interest rates to support the economy.

Business conditions, which measure sales, profitability and employment, slid last month, National Australia Bank Ltd. said in a report on Tuesday. Capacity utilization fell to 81.4%, returning to its long-run average for the first time since mid-2021.

A separate Westpac Banking Corp report showed consumer confidence rose 2.2% to 92.1 points in May as households increasingly expect a rate cut next week. The result still means pessimists outweigh optimists with the dividing line 100.

“Overall, both business conditions and confidence remain weak relative to average levels,” said Sally Auld, chief economist at NAB. This highlights “the risk that the economy is struggling to maintain the pick up in momentum we saw in the last quarter of 2024.”

The NAB report showed that business confidence improved slightly, though it remained in negative territory and below its long run average. Confidence was weakest in the retail and wholesale sectors.

The consumer and business sentiment gauges come just a week before the RBA is widely expected to lower its key rate to 3.85% after core inflation returned to the central bank’s 2-3% target band for the first time in three years.

There is “a more confident view on the prospect of interest rate cuts,” Matthew Hassan, Westpac’s head of Australian macro forecasting, said in a statement. “The benign March quarter CPI update released on April 30 would have gone some way towards shoring up expectations.”

“Current policy settings are still weighing on the consumer, as shown by both pessimistic sentiment reads and slow growth in spending,” Hassan said. “As such, some further easing in these restrictive settings is appropriate.”

Household sentiment may see a further boost after the US and China announced that they had agreed to temporarily lower tariffs on each other’s products in a dramatic ratcheting down of trade tensions.

The reports also come after Prime Minister Anthony Albanese on May 3 won the largest victory for his center-left Labor Party since 1943, becoming the first Australian leader to win consecutive elections in more than two decades.

Other key data points:

• Westpac’s report showed the economic outlook next 12 months sub-index rose 2.8% to 93

• Responses across Westpac’s survey suggest the election result was viewed as a “small positive”

• The time to buy a major household item sub-index climbed 3.5% to 93.2

• The Westpac–Melbourne Institute Unemployment Expectations Index fell 2.1% — a drop means households expect the jobless rate to fall over the year ahead

• NAB’s report showed purchase cost growth picked up to 1.7% in quarterly equivalent terms from 1.4%, while labor cost growth was steady. Forward orders slipped further to -3 index points while capex slumped to 1 index point from 7