5 April, 2011
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The latest D&B National Business Expectations Survey shows...
Outlook for the June quarter 2011
- Sales expectations are down 17 points to an index of 14, the lowest of the latest seven quarters and just one point above the 10-year average
- A decrease of 22 points has taken the profits expectations index to 8, just two points above the 10-year average index of 6
- Employment expectations are down six points to an index of 3, the lowest level in five quarters but still just a point above the 10-year average index
- The inventories index down nine points to 1 and is now below the 10-year average index
- A fall of eight points has taken the capital investment index to 5, well down on the previous four quarters, just below the average index (6) of the last 10 years
- The selling prices index is down one point to 17, being relatively steady for the last five quarters
Issues expected to influence operations in the June quarter 2011
- Twenty six percent of firms believe fuel prices will be their main concern in the quarter ahead - a significant rise of 11 percent in one month
- Twenty three percent of executives rank interest rates as the primary influence on their business - this is a fall of six percent in a month and is now well down from the high level of concern in December last year (40 percent)
- Twenty one percent of firms expect wages growth to be the primary influence on operations - down six percent in two months
- Seventeen percent of firms believe access to credit will be the most important business influence in the quarter ahead - up one percent since last month
Actual for the December quarter 2010
- Capital investment was positive for the seventh consecutive quarter, with a net index of four - 10 percent of firms increased investment while six percent cut spending
- Twenty four percent of firms increased sales compared to the December quarter 2009, while 18 percent experienced lower sales
- Eleven percent of firms increased staff while nine percent reduced employee numbers
- The profits index was down five points to an index of one - twenty percent of firms increased profits and 19 percent recorded lower earnings
- The selling price index rose by four points to an index of 15 - twenty four percent of firms raised prices and nine percent decreased prices.
Business expectations have continued to decline as firms grapple with weak consumer spending and the fear of rising fuel prices, according to the latest Dun & Bradstreet Business Expectations Survey. The survey, which examines expectations for the June quarter, reveals significant declines in the outlook across most indices after record highs just six months ago.
Sales expectations are now at their lowest level in almost two years, dropping 17 points to a net index of 14. Expectations are particularly weak for the retail sector, which has struggled to stimulate consumer interest even with heavy discounting. Sales expectations for retailers sit at a net index of 6, which is 8 points below the overall index of 14. Only non-durable manufacturers have higher sales expectations for the June quarter.
The decline in sales expectations is flowing through to the outlook for profits with the overall profits index dropping 22 points to a net index of 8. However, while the drop is significant profit expectations still remain above the 10 year average of 6.
Capital investment and inventories expectations are also experiencing declines as a result of the more subdued sales and profits outlook. The capital expectations index has declined 8 points to a net index of 5, which is well down on the previous four quarters and just below the 10 year average. This fall in investment expectations follows a lower net index (4) for actual capital expenditure during the December quarter of 2010.
Inventory expectations are down 9 points as more executives plan to de-stock in response to the sales outlook. The process of de-stocking has a flow on effect throughout the supply chain for most firms. The reduction in the inventories expectations index comes on the back of the first quarter of negative actual inventories growth in more than a year.
Employment expectations have also declined and are now at their lowest level in five quarters. At the same time interest rates have been replaced by uncertainty about fuel prices as the number one concern for executives.
However, while all indices are down, in some cases dramatically, the declines have effectively returned indices to their long run ten year averages signalling that the economic volatility of the previous two years may be coming to an end and a more normal economic environment may be emerging.
Dun & Bradstreet CEO Christine Christian believes this was always likely to occur as the Government stimulus package was wound down and households reassessed their debt levels and sought to deleverage.
"The Government stimulus package and the quick upturn in demand for commodities from developing countries following the global crisis allowed Australian firms to enjoy rather robust conditions throughout 2010", said Ms Christian.
"However, as the stimulus package has been unwound and interest rates have started to rise households have pulled back on their spending and began a process of deleveraging. This has resulted in executives adjusting their expectations bringing them back into line with the long run average."
The latest Business Expectations Survey also reveals that 41 percent of executives see that a continuing strong Australian dollar will have a positive impact on their business in the quarter ahead - for 16 percent a significant impact. Some 26 percent expect a high dollar to have a negative impact; for 33 percent it will have no impact.
Expected Profits, Sales, Employment and Inventories Indices
Twenty five percent of executives indicated that they intend to increase their cash reserves in the next three months - a drop of 17 percent in one month and the lowest recorded since this question was first asked in August 2010. Only 14 percent of executives are likely to seek finance or credit to grow their business in the quarter ahead, with 82 per cent not likely and 4 per cent not sure.
The number of firms indicating that access to credit will be the most significant influence on their business in the quarter ahead is 17 percent (up one percent since last month).
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the Australian economy will soon recover from the temporary effect from the recent Queensland cyclone and floods. However, the situation in Japan and the Arab world must continue to be a dampener on business expectations.
"The latest D&B survey reveals that the significant reduction in second quarter business expectations for growth in sales and profits has led to a large reduction in capital expenditure and inventories expectations to below their 10-year averages. If this continues through the following half of 2011 business will not be prepared for any resumption of household spending."
"The latest Bureau of Statistics data for February give a positive indication for somewhat better than expected growth in retail sales. Households may be more relaxed about their level of debt and preparing for some increase in spending," said Dr Ironmonger.
About the survey
D&B Australasia conducted the latest Business Expectations Survey in December 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.
