Businesses are showing renewed optimism about trading conditions in the New Year off the back of better than expected results in the September quarter and an anticipated cut in interest rates.
Dun & Bradstreet's latest Business Expectations Survey found that firms were anticipating improved performance across sales (+11), profits (+2), employment (+7) and investment (+7) for the first quarter of 2012, with a 25 per cent fall in the number of firms anticipating being impacted by interest rates.
According to Dun and Bradstreet CEO, Christine Christian, talk of a possible interest rate cut by the Reserve Bank appears to have buoyed executives, particularly in the small business sector.
"Growing positive sentiment and a renewed interest in hiring staff and increasing investment amongst Australian firms indicates a refocus of efforts on growth rather than just survival - if only in the short term," Ms Christian said.
The upward trend in expectations reflects stronger than expected sales and profit performance in the September quarter, particularly in the manufacturing and wholesaling sectors.
The D&B Business Expectations Survey shows that for the March 2012 quarter:
- Sales Expectations are now at their highest level in twelve months. Sales expectations are particularly strong for wholesalers, up 23 points;
- Employment Expectations are also at their highest level in twelve months and are strengthening across all sectors;
- Profit Expectations have continued to recover from the first negative index in two years but remain more than 20 points below this time last year;
- Investment Expectations have risen seven points and are now significantly above the long-range average; and
- Inventory Expectations have jumped 12 points, underlining improving sentiment in sales expectations.
In addition, the outlook for selling prices continues to be subdued, down two points for the quarter, and 16 points below the long-range average.
These figures align with recent CPI data which indicated the better than expected inflation result was being driven by flat or falling prices for discretionary items such as electronics and motor vehicles - while essentials such as rent and utilities rose significantly.
"It would appear that retailers and manufacturers are unlikely to significantly raise prices any time soon, in part because the higher exchange rate is restricting their capacity to raise prices."
"While this may assist with volumes, margins will continue to suffer and this is being reflected in what we are seeing in terms of profit expectations," Ms Christian said.
The profit outlook for the 2012 March quarter remains in the single digits (+7), significantly below levels seen for the 2011 March quarter (+30). This is correlated with a weakening in sales expectations by nine points over the same period.
Expected Sales, Profits, Employment, Inventories and Capital Investment Indices
Despite resurgence in overall expectations, retailers are still doing it tough - citing slow demand and wages growth as their biggest concerns for next year.
More than one in four retailers voiced concern over wages and salary growth, up 12 percentage points on the previous month. Meanwhile, 62 per cent of retailers expect slow demand to be the biggest barrier for their business in the year ahead, up ten percentage points since last month.
Not surprisingly, profit expectations in the sector remain in negative territory for the fourth quarter in a row, reflecting the industry's actual negative profit performance over the last five quarters.
"While actual sales in the retail sector rose noticeably during the September quarter, profit remained in negative territory. For that reason, a spike in concern from retailers over wages growth is particularly worrying and a sure sign of cash flow distress, a key barometer of business health," Ms Christian said.
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the latest D&B Business Expectations Survey shows improving prospects for the year ahead with all aspects of the first quarter of 2012 being much better than those for the last three quarters of 2011.
"Despite volatility in international financial markets in recent weeks, current financial conditions in Australia have become easier with bank lending rates for some housing and business loans being reduced. This change has contributed to a more confident outlook," Dr Ironmonger said.
"The survey shows a welcome pick-up in the expected growth in employment across all sectors. If this is realised and sustained, we may see further favourable moves in the unemployment rate next year."
Detailed results for the Dun & Bradstreet Business Expectations Survey are attached.
About the survey
D&B Australasia conducted the latest Business Expectations Survey in October 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.
