Australian businesses remain cautious about the outlook for Christmas amid expectations of slowing demand and greater economic uncertainty.
According to the Dun & Bradstreet Business Expectations Survey for the December quarter, firms are keeping expectations for the holiday period firmly in check with more than 50 per cent of firms anticipating demand to slow over the next 12 months.
Dun & Bradstreet CEO, Christine Christian, said the December projections are significantly below where they were at this time last year.
"It's clear that global economic uncertainty is affecting the confidence of business and consumers alike with knock-on effects for anticipated sales, profit and employment growth," Ms Christian said.
The Business Expectations Survey shows that for the upcoming December quarter:
- Sales Expectations over the last two months are at their lowest levels in over two years having fallen more than 23 points over the last four quarters. Expectations are particularly weak for durables manufacturing (down 9 points).
- Employment Expectations have recovered from the first negative index in two years but are still seven points below last year with significant staff reductions expected in the retail sector.
- Profit Expectations have also recovered from the first negative index in two years but remain more than 20 points below this time last year. Observed actual results remain in negative territory.
- Investment and Inventory Expectations appear to have arrested their recent rapid decline but remain more than 10 points below where they were a year ago.
Negative outlook among retailers is a reflection of the industry's actual performance in the June quarter. Significant declines were recorded in the second quarter across sales (-3) and profits (-10), forcing stores to shed employees (-2). This is anticipated to continue through December, with profits trending down and prompting retailers to slash staff numbers over what should be a period of peak productivity.
"Australian consumers are now saving at levels not seen since the 1980s. Retailers, not surprisingly, are experiencing one of their worst years. Retailers seem to have given up hope that conditions will improve this side of Christmas," Ms Christian said.
"There is an acute awareness in the industry that retailers cannot count on the usual flurry of Christmas spending to push them over the line, as they might have done in the past. This is a real concern for many businesses as Christmas is such a key time for discretionary spending and most rely on the period to kick start them into the New Year."
Expected Sales, Profits, Employment,
Inventories and Capital Investment Indices
This uncertainly and lack of confidence is reflected in Survey findings that less than 20 per cent of firms plan to seek finance or credit to grow their business in the coming months.
"This result correlates strongly with official statistics showing that business credit has fallen over the past year, indicating that financial conditions are significantly tighter than normal. When businesses shun new credit in this way it is a sure sign they are worried about the future," Ms Christian said.
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, in the last three years Australian households have reached a relatively high gross saving ratio of around 17 to 18 percent of disposable income. This compares with a saving ratio of only 8 per cent in the years 2003 -2005.
"This recent higher saving level has been accompanied by a very flat trajectory in retail spending. The latest D&B survey shows that the retailing sector is in the greatest difficulty with negative expectations for both profits and employment for the December quarter," Dr Ironmonger said.
Detailed results for the Dun & Bradstreet Business Expectations Survey are attached and below.
The latest D&B National Business Expectations Survey shows�
Outlook for the December quarter 2011
- Sales expectations are up one point to an index of 11, the second lowest of the last nine quarters and two points below the 10-year average index of 13
- An increase of seven points has taken the profits expectations index to 5, just equal to the 10-year average index
- Employment expectations are up four points to an index of 1, now one point below the 10-year average index of 2
- The inventories index is down one point to an index of 3, one point above the 10-year average index of 2
- A rise of five points has taken the capital investment index to 6, a turn-around of the rapid decline of the previous three quarters and now just one point above the average index (5) of the last 10 years
- The selling prices index is up one point to 17, 14 points below the 10-year average of 31
Issues expected to influence operations in the December quarter 2011
- 33 per cent of executives rank interest rates as the primary influence on their business - still higher than in the first six months of the year
- 21 per cent of firms expect wages growth to be the primary influence on operations - down four per cent from last month
- 19 per cent of firms believe fuel prices will be their main concern in the quarter ahead - a rise of three per cent in a month
- 12 per cent of firms believe access to credit will be the most important business influence in the quarter ahead - up four per cent in two months
Actual for the June quarter 2011
- Capital investment has maintained a positive run of nine consecutive quarters, with a net index of six. 13 per cent of firms increased investment while 7 per cent cut spending
- 28 per cent of firms increased sales compared to the June quarter 2010, while 23 percent experienced lower sales
- Thirteen percent of firms increased staff while 11 percent reduced employee numbers
- The profits index was up two points to an index of -1, 21 percent of firms increased profits and 22 percent recorded lower earnings
- The selling price index was down three points to an index of 12, 24 per cent of firms raised prices and 12 percent decreased prices
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.
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.
On August 31, 2010 the Dun & Bradstreet Corporation (US) acquired Dun & Bradstreet Australia and New Zealand from LCW.
