| 7 September, 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 15 points, taking the index to 33
- The profits index (22) is at the highest level in six years following an increase of 10 points
- A rise of 5 points has taken the inventories index (12) to highest level in more than six years
- Capital investment expectations are at the highest level in seven years having risen five points to an index of 18
- Selling price expectations have gained three points and are now at an index of 20
- Employment expectations remain unchanged at an index of five
Issues expected to influence operations in the December quarter 2010
- Thirty one percent of executives rank interest rates as the primary influence on their business in the December quarter - a fall of five percentage points in one month
- Twenty nine percent of firms expect wages growth to be the primary influence on operations - a rise of four percent in one month
- Fifteen percent of firms believe access to credit will be the most important business influence in the quarter ahead - a rise of seven percentage points in two months
- Fourteen percent of firms believe fuel prices will be their main concern in the quarter ahead - down two percent in one month
Actual for the June quarter 2010
- Capital investment was positive for a fifth consecutive quarter - the index (17) rose to the highest level in seven years
- Thirty percent of firms increased sales compared to the June quarter 2009, while 24 percent experienced lower sales
- Fourteen percent of firms increased staff while 9 percent reduced employee numbers
- The profits index fell to 1 - nineteen percent of firms increased profits and eighteen percent recorded lower earnings
- The selling price index rose by six points to 16 - twenty five percent of firms raised prices and nine percent decreased prices.
The confidence of Australia's executives is showing clear signs of improvement, with expectations for five of six key indicators of business strength rising significantly. The latest Dun & Bradstreet Business Expectations Survey reveals solid expectations for growth in sales, profits, inventories, capital investment and selling prices during the December quarter however, firms remain subdued on hiring intentions.
The profits index has risen to its highest level in six years, with a ten percentage point climb since the September quarter taking the index to 22. One third of firms (34 percent) expect that profits will increase during the December quarter, while 12 percent anticipate a decrease. This substantial turn-around in confidence is remarkable, particularly following June quarter results which revealed that eighteen percent of firms recorded lower earnings than the prior year.
Retailers have experienced the most significant increase in expectations, rising 17 points to an index of 25. Conversely, non-durables manufacturers have the lowest profits expectations, with the net index at 17.
Expectations for improved sales are driving the rise in the profits index. Forty seven percent of firms expect an increase in sales in the December quarter 2010, while 14 percent anticipate a decrease. Solid expectations for the December quarter follow relatively solid June quarter figures - 30 percent of firms increased sales compared to the prior year.
The most significant increase in expectations has come from the retail sector where the sales index rose 25 points to 34. The durables manufacturers' sales index also rose substantially, climbing 21 points to an index of 33.
Increased sales expectations are flowing through to inventories. This index has reached its highest level in more than six years following an increase of five points since the previous quarter. Twenty one percent of executives expect to increase inventories, while nine percent plan to reduce stock levels. A rising contribution of stocks is an important indicator of confidence and the latest rise in this index comes on the back of solid June quarter results where Australian firms recorded their third consecutive positive quarter of inventories growth.
The confidence of durables manufacturers is evident in inventories expectations, with a net 16 percent of firms expecting to increase stock levels in the December quarter (the highest level in more than seven years). For retailers however, the index is substantially lower (at 7), demonstrating that they remain cautious despite significantly improved sales expectations.
Capital investment expectations have risen five points to an index of 18. Twenty three percent of executives expect to increase spending in this area, while five percent expect to cut their level of investment. This follows the fifth consecutive quarter (June quarter 2010) in which the index for actual capital investment was positive - a net 17 percent of firms increased their investment in capital compared to the June quarter 2009.
Retailers have the most significant expectations for capital investment, with the net index at 25. The index for non-durables manufacturers follows at 19.
Selling price expectations have risen by three points to an index of 20. One in four (26 percent) firms expects to raise prices during the December quarter, while six percent expect to lower prices. The actual selling prices index for the June quarter 2010 reveals that 25 percent of firms raised prices (compared to the year prior), while nine percent discounted their stock.
Retailers' selling price expectations are 10 percentage points higher than any other sector, with the net index at 28, while durables manufacturers' price expectations are the lowest - a net index of 15.
Employment expectations are unchanged on the September quarter 2010 - eleven percent of firms are planning to increase staff levels, while six percent expect to reduce employee numbers. 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, while the wholesalers' net index was 0.
The strong rise in the sales expectations of durables manufacturers is flowing through to employment intentions, with this group recording the highest index (9) of any sector. Twelve percent of durables manufacturers expect to take on new staff in the December quarter, while three percent expect to reduce employee numbers. Meanwhile, the caution displayed by retailers is also apparent in hiring intentions, with this group's employment index at 4.
According to Dun & Bradstreet's CEO Christine Christian, confidence is returning and the outlook for the back half of the year is promising.
"The turn around in the expectations of Australia's executives since the previous quarter has been quite remarkable," said Ms Christian.
"The latest survey shows that five key indicators of business strength have improved relatively significantly, with certain indexes rising to the highest level in six and seven years. The sales index is particularly strong and it is driving the increased level of expectations in profits, inventories and capital investment.
"We have also seen some quite substantial improvements in the actual index since the depths of the crisis, with the improvements experienced during the June quarter playing into confidence levels as we head towards the end of the year.
"The one area where firms remain cautious is employment. However, the intended level of hiring activity for the December quarter is still positive."
Although executive confidence levels for the forthcoming quarter are rising, the latest Business Expectations Survey reveals that 49 percent of firms expect slow growth in demand to be the biggest barrier to growing their business in the year ahead. Twenty percent of firms perceive skilled labour issues to be the primary barrier to growth and nine percent expect funding to impact their ability to expand. Meanwhile, 20 percent of firms don't see any major barrier to growth.
Slow paying business customers are negatively impacting 46 percent of firms, a fall of 11 percent since July. However, despite the impact of slow payers on a firm's cash flow, rising sales and profits expectations have 44 percent of executives planning to reduce their level of debt in the next three months. Meanwhile, just four percent of firms expect to increase debt levels and 50 percent plan to maintain current funding arrangements.
The impact of tighter lending conditions appears to be easing, with just eight percent of executives reporting decreased access to credit in the last quarter. Conversely, 19 percent of firms indicated they had greater or better access. Between February and May 2010 the proportion of firms with less access to credit was significantly greater than the proportion with 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 15 percent - this is well down on the 19 and 17 percent recorded in the April and May surveys. Meanwhile, 31 percent of firms rank interest rates as the major influence on their business, 29 percent consider wages growth to be their primary concern and 14 percent believe fuel prices will have the most significant impact on operations in the quarter ahead.
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the latest survey reveals that the capital investment outlook is the highest in seven years. This strengthens the return to higher expectations for growth in sales and profits.
"The latest ABS national accounts figures for the June quarter show strong growth in household spending and exports which are likely to be maintained for the second half of 2010," said Dr Ironmonger.
"Although government investment expenditure is likely to slow down in the year ahead, the latest ABS expected private capital expenditure current price data for 2010-11 show a massive rise of 24 percent over the previous year. This will help maintain growth momentum in the economy."
The D&B index for expected sales is up 15 points to 33, with 47 percent of executives expecting an increase in sales and 14 percent expecting a decrease. The profits index is up 10 points to 22, with 34 percent of executives expecting profits to rise and 12 percent expecting a fall.
Employment expectations are unchanged at an index of 5, with 11 percent of executives expecting an increase in staff and 6 percent expecting a reduction. Capital investment expectations are up 5 points an index of 18, with 23 percent of executives expecting an increase and 5 percent expecting to cut spending. Inventories expectations are up 5 points to an index of 12. The selling prices index is up 3 points to an index of 20, with 26 percent of firms expecting to raise prices and 6 percent expecting to decrease them.
About the survey
D&B Australasia conducted the latest Business Expectations Survey in August 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.
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.
