Australian companies have cited a possible interest rate rise as a key risk factor according to the most recent survey of business expectations by credit agency Dun & Bradstreet.
The national survey of manufacturing, wholesale and retail businesses in August found that more than a third of executives said 'interest rates' would be the primary influence on their business in the December quarter, a rise of seven points in two months.
Dun & Bradstreet CEO, Christine Christian, said the findings were consistent with a decline in business credit activity recorded by the Reserve Bank.
"We are beginning to see companies, particularly in manufacturing and retail, increasingly behaving like businesses in recession. The rising vulnerability to an interest rate rise is a warning sign these firms are deeply uncertain about the future," Ms Christian said.
The Business Expectations Survey also shows that for the upcoming December quarter:
- Sales expectations are now at their lowest level in over two years. Expectations are particularly weak for durables manufacturing (down 14 points) as a result of the continued strength of the Australian dollar;
- Employment expectations remain negative for the second consecutive quarter after 15 months of positive expectations. Significant staff reductions are expected to come from the manufacturing and retail sectors;
- Profit expectations appear to have bottomed out after a fall of 32 points in the preceding two quarters. Profit expectations in the retail sector remain negative;
- Investment and inventory expectations remain well below levels recorded this time last year, underlining difficulties being felt in the non-mining sector.
"We are seeing that interest rate concerns are making businesses less inclined to grow their activities through new lines of credit or finance. This will have a knock on effect to sales and employment with companies more likely to resort to cost cutting measures," Ms Christian said.
According to the survey, only 16 percent of companies are likely to seek finance or credit to grow their business while 37 per cent of companies indicated that they intend to increase cash reserves.
Expected Sales, Profits, Employment and Inventories Indices
The survey also reveals that 37 percent of businesses 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. Conversely, one-quarter of Australian businesses expect a high dollar to have a negative impact.
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, Australian households are maintaining a very cautious stance on spending; the latest ABS trend retail sales data are flat with only 0.1 percent growth in both June and July.
"Meanwhile ABS data show the mining sector is expecting a record rise of almost 75 percent in capital expenditure in 2011-12. This will comprise more than half of all private new capital expenditure this year and will help maintain the overall rate of growth of real GDP in the Australian economy.
"The latest D&B survey shows that all sectors except wholesaling are expecting to down-size their staff levels in both the September and December quarters. However, all sectors expect in increase capital investment expenditure in the December quarter and all except retailing expect a rise in profits for the quarter," Dr Ironmonger said.
Detailed results for the Dun & Bradstreet Business Expectations Survey are below.
The latest D&B National Business Expectations Survey shows:
Outlook for the December quarter 2011
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Sales expectations are unchanged at an index of 10, the lowest of the last nine quarters and three points below the 10-year average index of 13
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An increase of five points has taken the profits expectations index to 3, just two points below the 10-year average index of 5
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Employment expectations are up two points to an index of -1, the second negative in nine quarters and now three points below the 10-year average index of 2
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The inventories index is down four points to an index of 0, two points below the 10-year average index
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A rise of three points has taken the capital investment index to 4, a turn-around of the rapid decline of the previous three quarters and now just one point below the average index (5) of the last 10 years
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The selling prices index is up two points, 13 points below the 10-year average of 31
Issues expected to influence operations in the December quarter 2011:
- 34 per cent of executives rank interest rates as the primary influence on their business - a rise of seven per cent in two months
- 25 per cent of firms expect wages growth to be the primary influence on operations - up one per cent from last month
- 16 per cent of firms believe fuel prices will be their main concern in the quarter ahead - a fall of four per cent in a month
- 10 per cent of firms believe access to credit will be the most important business influence in the quarter ahead - up two per cent since last month
Actual for the June quarter 2011
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Capital investment has maintained a positive run of nine consecutive quarters, with a net index of six. 12 per cent of firms increased investment while 6 per cent cut spending
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27 per cent of firms increased sales compared to the June quarter 2010, while 24 percent experienced lower sales
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Ten percent of firms increased staff while 10 percent reduced employee numbers
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The profits index was up two points to an index of -1, 20 percent of firms increased profits and 21 percent recorded lower earnings
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The selling price index was down one point to an index of 14, 25 per cent of firms raised prices and 11 percent decreased prices
Sales expectations
Sales expectations are now at their lowest level in over two years, unchanged at a net index of 10. Expectations are particularly weak for durables manufacturing, the sector for which the continued high value of the Australian dollar has a net negative impact. Sales expectations for durables manufacturing sit at a net index of -1, which is 9 points below the overall index of 10.
Profits Expectations
With stability 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 2 points below the 10-year average of 5. Profit expectations for the retail sector, however, remain negative for the December quarter at a net index of -3.
Employment Expectations
Employment expectations are still in negative territory (-1); the second time this has occurred in nine quarters. This transition into negative expectations for the September and December quarters follows on from a net negative actual index for employment in the March quarter 2011. Expected reductions in staff numbers are in the retailing and manufacturing sectors, with the wholesale sector being 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 three quarters. This rise in investment expectations follows a rise of 5 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 four points, returning the index to two points below its 10 year average, with decreases expected by manufacturing executives and wholesale and retail executives planning to increase inventories. The change in the inventories expectations index follows a small negative actual inventories growth in June quarter 2011.
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.
