The latest D&B National Business Expectations Survey shows...
Outlook for the December quarter 2011
- Sales expectations are down 2 points to an index of 8, the lowest of the last nine quarters and five points below the 10-year average index of 13
- An increase of five points has taken the profits expectations index to 3, just three points below the 10-year average index of 6
- Employment expectations are down two points to an index of -5, the second negative in nine quarters and now seven points below the 10-year average index of 2
- The inventories index is down three points to an index of 1, two points below the 10-year average index
- A rise of three points has taken the capital investment index to 4, a turn-around of the rapid decline of the previous two quarters and now just one point below the average index (5) of the last 10 years
- The selling prices index is up four points, now ten points below the 10-year average of 30
Issues expected to influence operations in the December quarter 2011
- Thirty two percent of executives rank interest rates as the primary influence on their business - this is a rise of five percent in a month but still below the high level of concern in December last year (40 percent)
- Twenty four percent of firms expect wages growth to be the primary influence on operations - up one percent from last month
- Twenty percent of firms believe fuel prices will be their main concern in the quarter ahead - a rise of two percent in a month
- Only eight percent of firms believe access to credit will be the most important business influence in the quarter ahead - down nine percent since last month
Actual for the June quarter 2011
- Capital investment has maintained a run of nine consecutive positive quarters, with a net index of four - 10 percent of firms increased investment and 6 percent cut spending
- Twenty eight percent of firms increased sales compared to the June quarter 2010, while 26 percent experienced lower sales
- Nine percent of firms increased staff while 13 percent reduced employee numbers
- The profits index was up two points to an index of minus one - 21 percent of firms increased profits and 22 percent recorded lower earnings
- The selling price index was down one point to an index of 14 - twenty six percent of firms raised prices and 12 percent decreased prices.
Employment expectations for the December quarter 2011 have dipped, placing the employment outlook in negative territory. This has come amid fears from executives of the possible affect of continued wage rises on firm operations - mirroring the 13 percent of firms that reduced employee numbers during the June quarter.
Likewise, de-leveraging is expected to continue during the first half of the new financial year, assisted by key decision-makers who anticipate avoiding new credit. This reflects the number one fear for executives that a looming interest rate rise from the Reserve Bank will damage operations, with one third labelling this their primary concern for the December quarter.
Further pressure on the already stressed consumer evident in recent Consumer Price Index data saw executives in all sectors bar wholesale drop their inventory expectations to below the 10 year average. Despite over a quarter of firms experiencing a sales increase during the June quarter, sales expectations for most executives fell to the lowest point in over two years.
However, actual capital investment rose sharply during the June quarter in all sectors bar durables manufacturing and this trend is expected to continue into the 2011-12 financial year, as firms align plans for future investment with anticipated long-term profit growth.
Sales expectations
Sales expectations are now at their lowest level in over two years, dropping two points to a net index of 8. Expectations are particularly weak for the retail sector, which continues to struggle to entice consumer spending even with sustained discounting. Sales expectations for retailers sit at a net index of -6, which is 14 points below the overall index of 8. Wholesalers have a rise of three points in sales expectations for the December quarter; Non-Durables Manufacturers a rise of 11 points.
Profits expectations
Despite the decline in sales expectations the outlook for profits has improved with the overall profits index rising five points to a net index of 3. The profits expectations index is now only 3 points below the 10-year average of 6.
Employment expectations
Employment expectations have moved further into negative territory (-5); the second time this has occurred in nine quarters. This transition into negative expectations for the September and December quarters follows on from the percentage of firms that already reduced employee numbers during the March and June quarters.
An expected reduction in staff numbers in the new financial year in the retailing and manufacturing sectors reflects flagging profits in these sectors. The wholesale sector is the only one to expect a rise in employment.
Capital investment expectations
The capital expectations index has risen 3 points to a net index of 4, a turn-around from the decline in the previous two quarters. This rise in investment expectations follows a rise of 3 points for actual capital expenditure during the June quarter of 2011.
This includes the troubled retail sector, where executives expect to continue to build their businesses in anticipation of improved sales nearer the end of 2011.
Inventory expectations
Inventory expectations are down three points, returning the index to two point below its 10 year average, with decreases expected by the manufacturing and retail executives but wholesale executives are planning to increase inventories. The change in the inventories expectations index follows a small positive actual inventories growth in June quarter 2011.
Dun & Bradstreet CEO Christine Christian believes the data show that executives expect to maintain profit levels through cost cutting rather than increased sales.
"While rising profit expectations offer some hope the reality is that this will be driven by reduced costs, particularly in regard to labour costs. This is most pronounced for retailers and manufacturers", said Ms Christian.
"Retailers expect sales to remain weak as ongoing discounting campaigns by brick-and-mortar traders prove no match for the rising cost of living and subsequent anticipated rate rises."
"With executives expecting to increase selling prices towards Christmas, the strain on consumers can only worsen and businesses in these key areas of the economy may see a noticeable drop in demand," Ms Christian said.
Expected Profits, Sales, Employment and Inventories Indices
The latest Business Expectations Survey also reveals that 37 percent of executives see that a continuing strong Australian dollar will have a positive impact on their business in the quarter ahead - for 19 percent a significant impact. Some 27 percent expect a high dollar to have a negative impact; for 36 percent it will have no impact.
Thirty seven percent of executives indicated that they intend to increase their cash reserves in the next three months - a rise of 12 percent from 25 per cent in March, the lowest recorded since this question was first asked in August 2010. Only 16 percent of executives are likely to seek finance or credit to grow their business in the quarter ahead, with 80 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 8 percent (down nine percent since last month) and is well down from the high level of concern in December last year (40 percent). This reflects the general disinterest in new lines of credit during the December quarter sparked by short term interest rate fears.
Fifty six per cent of executives see a slow growth in the demand for their products as the biggest barrier to growing their business in the year ahead, the highest percentage since this question was first asked in June 2010.
eventeen percent see access to or shortage of skilled labour and eight percent see access to or shortage of funding as the biggest barriers. Only 16 percent don't see any major barrier to growth in the year ahead.
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the cautious consumer, the high value of the Australian dollar and the slight surge in the underlying inflation rate are all restraining the current rates of growth in the Australian manufacturing and retailing sectors. However, in the medium term the very strong growth in investment in the resources sector will maintain the overall rate of growth of real GDP in the Australian economy.
"The latest D&B survey shows that, although businesses are still expecting to down-size their staff levels, they expect a modest recovery in the growth in both profits and capital investment. This provides some hope for recovery in business conditions for Australian manufacturing and retailing," Dr Ironmonger said.
About the survey
D&B Australasia conducted the latest Business Expectations Survey in July 2011. 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.
Copies of these results can be viewed and downloaded from the D&B website at: www.dnb.com.au
About D&B
D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 130 million companies.
Information is gathered in 209 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than one million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.
