8 March, 2011
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The latest D&B National Business Expectations Survey shows...
Outlook for the June quarter 2011
- Sales expectations are down 14 points to an index of 17, the lowest of the latest seven quarters but still four points above the 10-year average
- A decrease of 17 points has taken the profits expectations index to 13, but still well above the 10-year average index of 6
- Employment expectations are down four points to an index of 5, the lowest level in five quarters but still above the 10-year average index of 2
- Although down five points to 5, the inventories index is still higher than any in the four years to December quarter 2009
- A fall of six points has taken the capital investment index to 7, well down on the previous four quarters, just above 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 nine percent of executives rank interest rates as the primary influence on their business - this a rise of two percent in a month but still down from the high level of concern in December last year (40 percent)
- Twenty three percent of firms expect wages growth to be the primary influence on operations - down four percent in one month
- Sixteen percent of firms believe access to credit will be the most important business influence in the quarter ahead - down two percent since last month
- Fifteen percent of firms believe fuel prices will be their main concern in the quarter ahead - down three percent in one month
Actual for the December quarter 2010
- Capital investment was positive for the seventh consecutive quarter, with a net index of six - 12 percent of firms increased investment while six percent cut spending
- Twenty five percent of firms increased sales compared to the December quarter 2009, while 20 percent experienced lower sales
- Twelve percent of firms increased staff while nine percent reduced employee numbers
- The profits index was down five points to an index of one - twenty two percent of firms increased profits and twenty one percent recorded lower earnings
- The selling price index rose by five points to an index of 16 - twenty four percent of firms raised prices and eight percent decreased prices.
Business expectations have declined dramatically as consumer deleveraging weighs down retailers, wholesalers and manufacturers according to the latest Dun & Bradstreet Business Expectations Survey, which examines expectations for the June quarter of 2011. The impact of consumer deleveraging is most evident in sales and profit expectations but is also flowing through to other key indices.
Sales expectations are now at their lowest level in almost two years, dropping 14 points to a net index of 17. 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 8, which is 9 points below the overall index of 17. 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 17 points to a net index of 13. However, while the drop is significant profit expectations still remain well above the 10 year average.
This relatively strong performance compared to the long run average may explain why expectations for declining margins are not resulting in attempts to fill the gap through increased prices. The absence of a fundamental change in pricing in response to the sales and profits outlook is evident in the selling price expectations of executives, which has dropped only 1 point. Retailers have lowered their expectations for price increases signalling that they will continue to keep discounting in an attempt to stimulate sales.
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 6 points to a net index of 7, which is well down on the previous four quarters and just above the 10 year average. This fall in investment expectations follows a lower net index (6) for actual capital expenditure during the December quarter of 2010.
Inventory expectations are down 5 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 rising wages have been replaced by uncertainty about interest rates as the number one concern for executives.
Dun & Bradstreet CEO Christine Christian believes the latest results show that consumer deleveraging is becoming an entrenched trend that is primarily impacting retailers but also flowing through to their suppliers in the wholesale and manufacturing industries.
"Heavy discounting by retailers does not appear to be dissuading consumers from paying down their debt and increasing their savings", said Ms Christian.
"Retailers now appear to be accepting the permanency of this trend and have adjusted their expectations for the June quarter accordingly. As a result manufacturers and wholesalers have also lowered their expectations and the consumer effect washes through the supply chain."
The latest Business Expectations Survey also reveals that 48 percent of executives see that a continuing strong Australian dollar will have a positive impact on their business in the quarter ahead - for 21 percent a significant impact. Only 16 percent expect a high dollar to have a negative impact; for 37 percent it will have no impact.
Forty two percent of executives indicated that they intend to increase their cash reserves in the next three months - this is a rise of 9 percentage points in two months. Only 18 percent of executives are likely to seek finance or credit to grow their business in the quarter ahead, with 76 per cent not likely and 6 per cent not sure.
However, the number of firms indicating that access to credit will be the most significant influence on their business in the quarter ahead is 16 percent (down two percent since last month).
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the latest outlook for the Australian economy is that growth in employment will be at a somewhat slower rate through the first half of 2011 than in 2010.
"Although Australia's resources sector continues a strong expansion, the cautious consumer spending of households is restraining growth in the retail, wholesale and manufacturing sectors," said Dr Ironmonger.
"Households are continuing to save around 10 percent of disposable income and the Bureau of Statistics latest data show no growth in the trend money aggregate of retail sales in each of the four months to January."
"The D&B survey reveals that, although businesses have significantly reduced their second quarter expectations for growth in sales and profits, their expectations for sales, profits, employment, investment and inventories are all still above their 10-year averages. This is combined with a subdued outlook for growth in selling prices."
The D&B index for expected sales is down 14 points to 17, with 38 percent of executives expecting an increase in sales and 21 percent expecting a decrease. The profits index is down 17 points to 13, with 32 percent of executives expecting profits to rise and 19 percent expecting a fall.
Employment expectations are down 4 points to an index of 5, with 16 percent of executives expecting an increase in staff and 11 percent expecting a reduction. Capital investment expectations are down 6 points an index of 7, with 14 percent of executives expecting an increase and 7 percent expecting to cut spending. Inventories expectations are down 5 points to an index of 5. The selling prices index is down 1 point to an index of 17, with 27 percent of firms expecting to raise prices and 10 percent expecting to decrease them.
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.
