6 October, 2010
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The latest D&B National Business Expectations Survey shows...
Outlook for the December quarter 2010
- Sales expectations have surged by 16 points, taking the index to 34
- An increase of 14 points has taken the profits index to 26, the highest level in more than six years
- The inventories index is at the highest level in seven years (13) following a six point rise
- A rise of four points has taken the capital investment index to 17, its highest level in seven years
- A four point gain has taken the selling prices index to 21
- Employment expectations have climbed three points to an index of eight
Issues expected to influence operations in the December quarter 2010
- Thirty two percent of firms expect wages growth to be the primary influence on operations - a rise of seven percent in two months
- Twenty eight percent of executives rank interest rates as the primary influence on their business in December quarter - a fall of eight percentage points in two months
- Seventeen percent of firms believe access to credit will be the most important business influence in the quarter ahead - a rise of nine percentage points in three months
- Just 10 percent of firms believe fuel prices will be their main concern in the quarter ahead - down six percent in two months
Actual for the June quarter 2010
- Capital investment was positive for the fifth consecutive quarter, with a net index of 15 - 20 percent of firms increased investment while five percent cut spending in this area
- Thirty two percent of firms increased sales compared to the June quarter 2009, while 23 percent experienced lower sales
- Fifteen percent of firms increased staff while 10 percent reduced employee numbers
- The profits index was unchanged at 3 - twenty two percent of firms increased profits and nineteen percent recorded lower earnings
- The selling price index rose by four points to an index of 14 - twenty five percent of firms raised prices and 11 percent decreased prices.
The Christmas trading period looks set to provide the stimulus Australian businesses need to generate strong growth, with the latest Dun & Bradstreet Business Expectations Survey revealing that executives are confident they will deliver on six key indicators of business strength. Expectations for growth in sales, profits, employment, inventories, capital and investment and selling prices during the December quarter 2010 are solid, with certain indices at the highest level in six and seven years.
The sales expectations index has surged 16 points to 34. Forty nine percent of firms expect an increase in sales in the December quarter 2010, while 15 percent anticipate a decrease. The confidence of retailers has climbed significantly, with the retail sales index rising 28 points to 37. The sales index for durables manufacturers' also rose substantially, climbing 26 points to 38.
The strong expectations for the December quarter come on the back of three solid positive net indexes. The actual sales index hovered at around nine between December 2009 and June 2010. This followed seven consecutive negative indexes.
Strong sales expectations are also flowing through to the profits, inventories and employment indices. The profits index has climbed to its highest level in more than six years, with a 14 percentage point rise since the September quarter taking the index to 26. Four in ten firms (38 percent) expect profits will increase during the December quarter, while 12 percent anticipate a decrease. Retailers have the highest profit expectations index at 30; however the index for durables manufacturers is also high at 29.
Like the sales index, the substantial surge in the profits expectations index follows three positive quarters of growth in the (actual) profits index.
The inventories index is currently at the highest level in seven years, with a rise of six points since the previous quarter taking the net index to 13. Twenty three percent of executives expect to increase inventories, while 10 percent plan to reduce stock levels. For retailers however, the confidence displayed in sales and profits expectations is not flowing through to inventories. The retailers' net index is at eight, this compares to an index of 15 for non-durables manufacturers and wholesalers.
A rising contribution of stocks is an important indicator of confidence and the latest rise in this index comes on the back of three consecutive quarters (December 2009-June 2010) of positive inventories growth.
Employment expectations have climbed three points on the September quarter 2010, taking the net index to eight. Fourteen percent of firms are planning to increase staff levels during the December quarter, while six percent expect to reduce employee numbers. The strong rise in the sales expectations of durables manufacturers is flowing through to employment intentions, with this group recording the highest index (13) of any sector. Retailers and wholesalers follow, both with an index of eight. This equates to a six percentage point rise compared to the previous quarter for retailers but a fall of three percentage points for wholesalers.
During the June quarter a net five percent of firms increased staff levels. The durables manufacturers' employment index was the highest of all sectors, with a net 11 percent of firms taking on new staff. Wholesalers however had a net index of 1.
Capital investment expectations have risen four points to an index of 17. Twenty two percent of executives expect to increase spending in this area, while five percent expect to cut their level of investment. Retailers have the most significant expectations for capital investment, with the net index at 22. Conversely, wholesalers have the lowest index at 13.
These solid investment expectations follow the fifth consecutive quarter of positive capital investment - a net 15 percent of firms increased their investment in capital during the June quarter (compared to the same quarter the year earlier). This is the highest actual index in seven years.
The selling price expectations index has also climbed four points, taking the net index to 21. Twenty eight percent of firms expect to raise prices in the December quarter, while seven percent expect to lower prices. Retailers' selling price expectations are nine percentage points higher than any other sector, with the net index at 30. Meanwhile, wholesalers' price expectations are the lowest, with the net index for this sector at 14.
The actual selling prices index for the June quarter 2010 reveals that 25 percent of firms raised prices (compared to the year earlier), while 11 percent discounted their stock. The net index for the June quarter was 14 - this is a rise of four percentage points on the March quarter.
According to Dun & Bradstreet's CEO Christine Christian, the Christmas trading period could be the catalyst Australia needs to drive a significant increase in sales and economic growth.
"The confidence of Australian firms has improved substantially over the past 18 months," said Ms Christian.
"Executives are now expecting to deliver solid sales and profits growth in the December quarter - they are also anticipating a need to take on new staff and displaying an appetite to invest in their operations. All of these factors bode well for our economy and indicate we will continue to deliver healthy growth in the second half of 2010.
"However, much of this buoyancy is being driven by expectations that the Christmas trading period will deliver its usual influx of buyers, with the sales index particularly strong.
"Although solid December quarter results will undoubtedly assist GDP figures for 2010, growth in these key areas must continue into the New Year if we are to prove resilient to the economic factors impacting other developed nations."
The latest Business Expectations Survey also reveals that 25 percent of firms don't see any major barrier to growth in the year ahead (a rise of five percent in one month). However, 47 percent of firms expect slow growth in demand to be their primary barrier, while 19 percent perceive skilled labour issues to be an issue and eight percent expect funding to impact their ability to expand.
Rising sales and profits expectations have 41 percent of executives planning to reduce their level of debt in the next three months. Meanwhile, just two percent of firms expect to increase debt levels and 55 percent plan to maintain current funding arrangements.
The impact of tighter lending conditions appears to be easing, with just seven percent of executives reporting decreased access to credit in the last quarter. Conversely, 19 percent of firms indicated they had greater or better access. In addition, the number of firms indicating that access to credit will be the most significant influence on their business in the quarter ahead is 17 percent. Meanwhile, 32 percent of firms consider wages growth to be the major influence on their business, 28 percent rank interest rates as their primary concern and 10 percent believe fuel prices will have the most significant impact on operations in the quarter ahead.
Slow paying business customers are negatively impacting 50 percent of firms, up four percent since August.
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the latest survey shows that Australian business is expecting to complete the current calendar year on a very buoyant note.
"All indexes for the December quarter are well in advance of the September quarter," said Dr Ironmonger.
"However a third of firms expect wages growth to be their primary concern in the quarter ahead and 19 percent see access to or a shortage of skilled labour as the biggest barrier to growing their business.
"These concerns are reinforced by the latest data from the Bureau of Statistics which show private sector job vacancies grew at the extremely rapid annual rate of 20 percent in the three months to August 2010.
"In addition, the trend rate of new dwelling approvals in August continued to decline at an annual rate of almost 30 percent. Consequently, the Reserve Bank may decide to leave cash rates unchanged for another month at its meeting this week."
The D&B index for expected sales is up 16 points to 34, with 49 percent of executives expecting an increase in sales and 15 percent expecting a decrease. The profits index is up 14 points to 26, with 38 percent of executives expecting profits to rise and 12 percent expecting a fall.
Employment expectations are up 3 points to an index of 8, with 14 percent of executives expecting an increase in staff and 6 percent expecting a reduction. Capital investment expectations are up 4 points an index of 17, with 22 percent of executives expecting an increase and 5 percent expecting to cut spending. Inventories expectations are up 6 points to an index of 13. The selling prices index is up 4 points to an index of 21, with 28 percent of firms expecting to raise prices and 7 percent expecting to decrease them.
About the survey
D&B Australasia conducted the latest Business Expectations Survey in September 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.
