7 December, 2010
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The latest D&B National Business Expectations Survey shows...
Outlook for the March quarter 2011
- An increase of eight points has taken the profits index to 34, the highest level in more than seven years
- Sales expectations have reached the highest level (37) since the December quarter 2003
- Employment expectations have risen four points to an index of 12, the highest figure recorded in seven years
- Although down three points to 10 the inventories index is at the second highest level in seven years
- The selling prices index has fallen two points to 19
- A fall of three points has taken the capital investment index to 14 but it remains above the figures recorded in the six years from the March quarter 2004 to the March quarter 2010
Issues expected to influence operations in the March quarter 2011
- Thirty four percent of executives rank interest rates as the primary influence on their business - this is a rise of eight percent in one month and the highest figure recorded since July 2010
- Thirty percent of firms expect wages growth to be the primary influence on operations - down two 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 one percentage point since last month
- Ten percent of firms believe fuel prices will be their main concern in the quarter ahead - down eight percent in one month
Actual for the September quarter 2010
- Capital investment was positive for the sixth consecutive quarter, with a net index of seven - 13 percent of firms increased investment while six percent cut spending
- Thirty four percent of firms increased sales compared to the September quarter 2009, while 19 percent experienced lower sales
- Fourteen percent of firms increased staff while eight percent reduced employee numbers
- The profits index was up three points to an index of six - twenty three percent of firms increased profits and seventeen percent recorded lower earnings
- The inventories index recorded its fourth consecutive positive quarter with a net index of eight
- The selling price index fell by two points to an index of 12 - twenty three percent of firms raised prices and 11 percent decreased prices.
The New Year looks set to bring a surge in sales and profits, with Australia's executives indicating they will deliver solid results in these areas during the first quarter. The strength of expectations in these key areas is also driving expectations for inventories and employment as firms anticipate a need to replenish stocks and take on new staff to meet the expected demand in sales.
The latest Dun & Bradstreet Business Expectations Survey reveals that expectations for sales during the March quarter 2011 are strong, with 52 percent of firms anticipating increased sales. An additional 15 percent of businesses believe sales will fall, leaving the index at a net 37, the highest level recorded since the last quarter of 2003. Four solid actual indexes are supporting the strong expectations for the New Year, with the actual index for the September quarter 2010 at 15.
The confidence of retailers has climbed significantly in recent months, with the retail sales index surging 10 points to 47. However, despite these significant expectations for the New Year retailers are yet to see strong gains in actual sales. This group's index is at 4 for the September quarter 2010, well below the level of other sectors that recorded figures of around 18 and 20.
Strong sales expectations are flowing through to profits, with this index climbing to its highest level in more than seven years. A 22 percentage point rise since the September quarter has taken the net index to 34. Five in ten firms (47 percent) expect profits will increase during the March quarter, while 13 percent anticipate a decrease. Like the sales index, the substantial surge in the profits expectations index follows three positive quarters of growth in the actual profits index.
Retailers are expecting a significant turn around in results over the December and March quarters. This group has the highest profit expectations index at 44 and it comes on the back of an actual index of -8 for the September quarter 2010. The index for durables manufacturers is also high at 40 however, their actual index is substantially higher than retailers at 11.
Inventories and employment expectations for the New Year are also strong, indicating that firms anticipate a need to replenish stocks and take on new staff to meet the expected demand in sales.
The inventories index is currently at the second highest level (10) recorded in the more than six years since the June quarter 2004. Twenty three percent of executives expect to increase inventories during the March quarter 2011, while 13 percent plan to reduce stock levels. The high levels of the inventories expectations index come on the back of four consecutive quarters (December 2009-September 2010) of positive inventories growth. In the last two quarters firms recorded the highest levels of inventories growth in more than five years.
Wholesalers have the highest expectations with a net index of 16, a one percentage point rise since the last quarter. Retailers and non-durables manufacturers have the lowest inventories expectations, both with net indexes of seven. This indicates that retailers are already carrying ample stock to meet their expected increase in sales over the Christmas and New Year period and will not be required to increase inventories until later in 2011.
Employment expectations are up four points on the December quarter 2010, taking the net index to 12. Sixteen percent of firms are planning to increase staff levels during the March quarter, while four percent expect to reduce employee numbers. Durables manufacturers and wholesalers have the highest net indexes at 17 and 13 respectively, while retailers and non-durables manufacturers have respective indexes of 11 and seven.
During the September quarter a net six percent of firms increased staff levels. The wholesalers' employment index was the highest of all sectors, with a net 12 percent of firms taking on new staff. Durables manufacturers had a net index of 2.
A fall of three points has taken the capital investment expectations index to 14, yet despite the fall, the index remains above the figures recorded in the six years from the March quarter 2004 to the March quarter 2010. Eighteen percent of executives expect to increase capital spending, while four percent expect to cut their level of investment. Non-durables manufacturers have slightly higher expectations for capital investment than other sectors, with the net index at 15. This compares to an index of 14 for all other sectors.
This fall in investment expectations follows a lower net index (7) for actual capital expenditure during the September quarter. This was a fall of eight points from the June quarter index of 15 when the highest actual index in seven years was recorded.
The selling price expectations index is down two points to 19. Thirty percent of firms expect to raise prices during the March quarter, while 11 percent expect to lower prices. Retailers' selling price expectations (at 18) have fallen 12 percentage points since the previous quarter and are now below the expectations of durables and non-durables manufacturers at 21 and 22 respectively. This indicates that although retailers are expecting strong sales performance in the New Year they may be intending to reduce prices in order to lift sales volumes.
The actual selling prices index for the September quarter 2010 reveals that 23 percent of firms raised prices (compared to a year earlier), while 11 percent discounted their stock. The net index for the September quarter was 12 - this is a fall of two percentage points on the June quarter.
According to Dun & Bradstreet's CEO Christine Christian, Australian businesses are preparing for solid performances in the first quarter of 2011.
"Local economic conditions and improving levels of business confidence have Australian executives set to deliver strong profits in the New Year," said Ms Christian.
"Surging sales expectations are the driver behind the anticipated increase in profits and if these expectations come to fruition, they will support a healthy rate of GDP growth in 2011. The strength of sales expectations is also driving inventories and employment plans, with firms anticipating a need to replenish stocks and take on new staff to meet demand.
"However, while capital investment expectations remain relatively strong, actual and expected spending in this area has declined in recent months. An increase in capital expenditure would result in improvements in productivity and would consequently support Australia's long term economic growth potential."
The latest Business Expectations Survey also reveals that 42 percent of firms expect slow growth in demand to be the primary barrier to growth in the year ahead. Twenty one percent of firms perceive skilled labour issues to be an issue, 10 percent expect funding to impact their ability to expand and 24 percent don't see any major barrier to growth (a rise of five percent in one month).
Only 36 percent of executives are planning to reduce their level of debt in the next three months - a fall from 47 percent in October. Meanwhile, just four percent of firms expect to increase debt levels and 52 percent plan to maintain current funding arrangements. In addition, 37 percent of executives indicated that they intend to increase their cash reserves - this is a fall of six percentage points since October.
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. 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 (up one percentage point since last month). Meanwhile, 34 percent of businesses rank interest rates as their primary concern, 30 percent consider wages growth to be the major influence on their business and 10 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 slower than expected growth experienced during the September quarter is not a cause for concern.
"The latest National Accounts from the Bureau of Statistics show that GDP growth in the September quarter was slower than expected," said Dr Ironmonger.
"However, this was mainly due to a temporary reduction in exports as household expenditure and non-dwelling construction remained strong.
"The D&B survey reveals that businesses are maintaining high expectations for growth in sales, profits and employment for the last quarter of 2010 and the first quarter of 2011. It also shows that Australian executives are expecting a relatively low level of growth in selling prices. This follows even lower actual increases in selling prices in the six quarters up to September 2010."
The D&B index for expected sales is up 3 points to 37, with 52 percent of executives expecting an increase in sales and 15 percent expecting a decrease. The profits index is up 8 points to 34, with 47 percent of executives expecting profits to rise and 13 percent expecting a fall.
Employment expectations are up 4 points to an index of 12, with 16 percent of executives expecting an increase in staff and 4 percent expecting a reduction. Capital investment expectations are down 3 points an index of 14, with 18 percent of executives expecting an increase and 4 percent expecting to cut spending. Inventories expectations are down 3 points to an index of 10. The selling prices index is down 2 points to an index of 19, with 30 percent of firms expecting to raise prices and 11 percent expecting to decrease them.
About the survey
D&B Australasia conducted the latest Business Expectations Survey in October 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.
