9 November, 2010
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The latest D&B National Business Expectations Survey shows...
Outlook for the March quarter 2011
- An increase of nine points has taken the profits index to 35, the highest level in more than seven years
- Sales expectations have reached the highest level (41) since the December quarter 2003
- A four point rise has taken the inventories index to the highest level in seven years (17)
- Employment expectations have risen one point to an index of nine
- The selling prices index is down three points to 18
- A fall of five points has taken the capital investment index to 12
Issues expected to influence operations in the March quarter 2011
- Thirty two percent of firms expect wages growth to be the primary influence on operations - unchanged from last month
- Twenty six percent of executives rank interest rates as the primary influence on their business - a fall of ten percentage points in three months
- Eighteen percent of firms believe fuel prices will be their main concern in the quarter ahead - up six percent in one month
- Fourteen percent of firms believe access to credit will be the most important business influence in the quarter ahead - a fall of three percentage points in one month
Actual for the September quarter 2010
- Capital investment was positive for the sixth consecutive quarter, with a net index of four - 10 percent of firms increased investment while six percent cut spending in this area
- Thirty one percent of firms increased sales compared to the September quarter 2009, while 19 percent experienced lower sales
- Eleven percent of firms increased staff while seven percent reduced employee numbers
- The profits index was unchanged at 3 - twenty one percent of firms increased profits and eighteen percent recorded lower earnings
- The selling price index fell by four points to an index of 10 - twenty two percent of firms raised prices and 12 percent decreased prices.
Australian executives are anticipating that strengthening local economic conditions will flow through to business results in the New Year. An expected surge in sales is also buoying profits, inventories and employment expectations, with all four indexes rising since the previous quarter. However, falls of five and three points respectively in the capital investment and selling prices indexes reveal that firms are less confident about these key measures of business strength.
The sales expectations index has risen seven points to 41, the highest level recorded since the last quarter of 2003. Fifty three percent of firms expect an increase in sales in the March quarter 2011, while 12 percent anticipate a decrease. The strong expectations for the March quarter come on the back of four solid positive actual indexes, which followed seven consecutive negative indexes (March quarter 2008 to September quarter 2009). The actual index for the September quarter 2010 was 12.
The confidence of retailers has climbed significantly, with the retail sales index surging 18 points to 55. However, despite these significant expectations for the New Year retailers are yet to see strong gains in actual sales. This group's index was at two for the September quarter 2010, well below the level of other sectors that recorded figures between 13 and 18.
Strong sales expectations are flowing through to the profits, inventories and employment indices for the March quarter. The profits index has climbed to its highest level in more than seven years, with a 23 percentage point rise since the September quarter taking the index to 35. Five in ten firms (47 percent) expect profits will increase during the March quarter, while 12 percent anticipate a decrease. Like the sales index, the substantial surge in the profits expectations index follows three positive quarters of growth in the (actual) profits index.
Retailers are expecting a significant turn around in results over the December and March quarters. This group has the highest profit expectations index at 50 and it comes on the back of an actual index of -13 for the September quarter 2010. The index for durables manufacturers is also high at 45 however, their actual index is substantially higher than retailers at 11.
The inventories index is currently at the highest level in seven years, with a rise of four points since the previous quarter taking the net index to 17. Twenty six percent of executives expect to increase inventories, while nine percent plan to reduce stock levels.
The latest rise in this index comes on the back of four consecutive quarters (December 2009-September 2010) of positive inventories growth, with firms recording the highest levels of inventories growth in more than six years in the last two quarters.
Retailers have increased their inventories expectations to a net index of 19, an 11 percentage point rise since the last quarter. The retailer's index is just below that of wholesalers (20), while non-durables manufacturers have the lowest inventories expectations (13).
Employment expectations are up one point on the December quarter 2010, taking the net index to nine. Thirteen percent of firms are planning to increase staff levels during the March quarter, while four percent expect to reduce employee numbers. Wholesalers and retailers have the highest net indexes at 13 and 12 respectively, while non-durables and durables manufacturers have respective indexes of 6 and 5.
During the September quarter a net four percent of firms increased staff levels. The wholesalers' employment index was the highest of all sectors, with a net 10 percent of firms taking on new staff. The retailer's index was at 6, while durables manufacturers had a net index of -2.
Despite improvements in the sales, profits, inventories and employment indexes, expectations for two key measures of business strength have deteriorated. Capital investment expectations have fallen five points to an index of 12. Sixteen percent of executives expect to increase capital spending, while four percent expect to cut their level of investment. Non-durables manufacturers have the most significant expectations for capital investment, with the net index at 17. Conversely, durables manufacturers have the lowest index at seven.
This fall in investment expectations follows a lower net index (4) for actual capital expenditure in the September quarter. This was a fall of 11 points from the June quarter index of 15, when the highest actual index in seven years was recorded.
The selling price expectations index is down three points to 18. Twenty nine percent of firms expect to raise prices during the March quarter, while 11 percent expect to lower prices. Retailers' selling price expectations (at 12) have fallen 18 percentage since the previous quarter and are now well below the expectations of durables and non-durables manufacturers at 24 and 22 respectively.
The actual selling prices index for the September quarter 2010 reveals that 22 percent of firms raised prices (compared to a year earlier), while 12 percent discounted their stock. The net index for the September quarter was 10 - this is a fall of four percentage points on the June quarter.
According to Dun & Bradstreet's CEO Christine Christian, the confidence of Australian executives continues to grow on the back of improving local economic conditions however caution is still evident.
"Australia is proving resilient to poor demand in the other OECD economies and growth is expected to continue at a healthy pace into the New Year," said Ms Christian.
"These factors are buoying the confidence of Australia's executives and accordingly, they are anticipating a surge in sales and profits growth in the New Year. Inventories and employment expectations are also rising, with both indexes now above pre-crisis levels.
"However, a fall in the capital investment index indicates that caution remains front of mind for businesses. A rise in the actual and expected indexes should follow later in the year once executives have recorded solid results and are confident they have the capacity to commit funds to investment."
The latest Business Expectations Survey also reveals that 45 percent of firms expect slow growth in demand to be the primary barrier to growth in the year ahead. Twenty two percent of firms perceive skilled labour issues to be an issue, 12 percent expect funding to impact their ability to expand and 19 percent don't see any major barrier to growth (a fall of six percent in one month).
Rising sales and profits expectations have 47 percent of executives planning to reduce their level of debt in the next three months. Meanwhile, just two percent of firms expect to increase debt levels and 49 percent plan to maintain current funding arrangements. In addition, 43 percent of executives indicated that they intend to increase their cash reserves.
The impact of tighter lending conditions appears to be easing, with just eight percent of executives reporting decreased access to credit in the last quarter - 16 percent of firms indicated they had greater or better access. In addition, the number of firms indicating that access to credit will be the most significant influence on their business in the quarter ahead is 14 percent (down three percentage points since last month). Meanwhile, 32 percent of firms consider wages growth to be the major influence on their business, 26 percent rank interest rates as their primary concern and 18 percent believe fuel prices will have the most significant impact on operations in the quarter ahead.
Slow paying business customers are negatively impacting 49 percent of firms, up three percent since August.
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, Australian businesses expect a very strong first quarter for 2011.
"Growth in sales and profits are expected to be the best in more than seven years and the latest data from the Bureau of Statistics show that the current inflation rate is not an issue," said Dr Ironmonger.
"However, the Reserve Bank expects this to end shortly as it believes the Australian economy has relatively modest amounts of spare capacity and will be hit by a large expansionary shock from the high terms of trade. The Bank's decision to raise official rates another notch last week could increase the proportion of businesses that rank interest rates as their main concern in the quarter ahead."
The D&B index for expected sales is up 7 points to 41, with 53 percent of executives expecting an increase in sales and 12 percent expecting a decrease. The profits index is up 9 points to 35, with 47 percent of executives expecting profits to rise and 12 percent expecting a fall.
Employment expectations are up 1 point to an index of 9, with 13 percent of executives expecting an increase in staff and 4 percent expecting a reduction. Capital investment expectations are down 5 points an index of 12, with 16 percent of executives expecting an increase and 4 percent expecting to cut spending. Inventories expectations are up 4 points to an index of 17. The selling prices index is down 3 points to an index of 18, with 29 percent of firms expecting to raise prices and 11 percent expecting to decrease them.
About the survey
D&B Australasia conducted the latest Business Expectations Survey in October 2010. Each quarter 1,200 business owners and senior executives representing major industry sectors across Australia are asked if they expect increases, decreases or no changes in their upcoming quarterly Sales, Profits, Employment, Capital Investment, Inventories and Selling Prices. Since its introduction in Australia in 1988, the Survey has proven to be a highly reliable measure of economic performance.
NOTE: The index figures used in the Survey represent the net percentage of Survey respondents expecting higher sales, profits, etc., compared with the same quarter of the previous year. The indices are calculated by subtracting the percentage of respondents expecting decreases from the percentage expecting increases.
