Business outlook robust despite consumer apathy

According to the latest Dun & Bradstreet National Business Expectations Survey, Australia’s economy is becoming increasingly resilient to consumer apathy, as firms engaged in business-to-business trade keep the domestic economy powering ahead even while retailers struggle to convince consumers to spend. The survey shows near-record expectations for sales, profits, capital investment, employment and inventories even while retailers report some of their most difficult circumstances for years.

Outlook for March quarter:

• Profits index increased to 30, the highest level in seven years;
• Employment expectations index rose one point to nine, the highest figure recorded in seven years;
• Sales expectations index down three points to 31, but still above those of the six years to March quarter 2010;
• Inventories index down three points to 10, but still the second-highest level in seven years;
• Capital investment index fell four points to 13, but remains above the figures recorded in the six years to the March quarter 2010; and
• Selling prices index fell three points to 18.

Issues expected to influence operations in March quarter:

• 40% of executives rank interest rates as the primary influence on their business, a rise of 14% in two months and the highest figure recorded since May 2009;
• 25% of firms expect wages growth to be the primary influence on operations, down 5% in one month;
• 15% believe access to credit will be the most important business influence in the quarter ahead, unchanged since last month; and
• 8% believe fuel prices will be their main concern in the quarter ahead, down 10% in two months.

Actual performance in September quarter 2010:

• Capital investment was positive for the sixth consecutive quarter, with a net index of eight - 13% of firms increased investment while 5% cut spending;
• 34% increased sales compared to the September quarter 2009, while 20% experienced lower sales;
• 13% increased staff while 8% reduced employee numbers;
• 24% increased profits and 18% recorded lower earnings; and
• 22% raised prices and 11% decreased prices.

The survey also reveals that 41% of firms expect slow growth in demand to be the primary barrier to growth in the year ahead, while 19% perceive skilled labour issues to be a barrier, 12% expect funding to impact their ability to expand and 24% don’t see any major barrier to growth.

42% of executives are planning to reduce their level of debt in the next three months - a rise from 36% in November. Meanwhile, just 7% expect to increase debt levels, 50% plan to maintain current funding and 33% intend to increase their cash reserves - a fall of 10 percentage points since October.

The impact of tighter lending conditions appears to be stable, with 12% of executives reporting better access to credit in the last quarter and 11% reporting less 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% (unchanged since last month).

According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the outlook for the Australian economy is for sound growth in 2011: “Although consumers are saving a higher proportion of disposable income, strong employment and income growth is continuing with only modest inflation pressure.

“The Reserve Bank's latest monetary policy meeting found there was a rebalancing of growth from public to private demand, an easing of the availability of bank financing and a positive outlook for business investment. Hence interest rate policy was unchanged.

“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.”

D&B Australasia conducted the latest Business Expectations Survey in December 2010, interviewing 1200 business owners and senior executives representing major industry sectors across Australia about their expected business metrics for the quarter.