Inflationary pressures set to continue in the December quarter
5 August 2008
The latest D&B National Business Expectations Survey shows
Outlook for December quarter 2008
- All indexes except selling prices remain in negative territory
- Sales and profits growth expectations continue to fall, down 43 and 41 points respectively from the highs of the December quarter 2007
- Employment growth expectations are at the lowest point since June 1991
- Capital investment expectations are up one point to an index of minus six
- Selling price expectations have climbed four points to an index of 54
Issues expected to influence operations in the December quarter 2008
- Climbing to the highest level in 16 months, 47 per cent of executives rate petrol prices as their primary concern in the quarter ahead
- Interest rate concerns remain high with one third (33%) of executives ranking rates as the issue most likely to impact their business in the December quarter
- Just seventeen per cent of firms rate wages growth as their primary concern in the quarter ahead
Tightening credit market
- Rising five per cent in just one month, seven in ten (72%) executives now anticipate that a tightening credit market will have a negative impact on operations
Petrol prices
- Climbing 28 per cent since March, 89 per cent of executives indicated that soaring petrol prices have had a negative impact on their business
Actual for June quarter 2008
- Growth in sales has declined to the lowest level since the March 1991 quarter
- Profits growth was negative and on par with the low of the March 1991 quarter
- Employment growth was negative and the worst since the June 1992 quarter
- Capital investment growth was negative and the lowest since the question's introduction in June 1994
- Selling price rises were up three points on the March quarter 2008
Economic conditions are expected to deteriorate further in the December quarter as continually escalating costs and poor sales results hurt the profits of Australian companies.
The latest Dun & Bradstreet (D&B) Business Expectations Survey reveals that the December quarter is expected to bring a steep decline in sales, profits, employment growth and capital investment, with all of these indexes remaining in negative territory for the second consecutive quarter.
Selling price expectations continue to rise and have hit the highest level in a year (an index of 54) following an increase of 3%. Fifty nine per cent of executives expect to raise selling prices in the December quarter, a clear sign that inflationary pressure will continue at least in the short-term.
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Profits expectations are also bleak, with fifty per cent of executives anticipating a decline in profits in the December quarter. This follows two consecutive quarters of poor profits results and a 41 point fall in expectations since the December quarter 2007.
The employment index has dropped to its lowest level in 17 years, with 26% of executives expecting to have fewer staff in the quarter ahead than they did a year ago. Just 11 per cent of businesses expect to increase employee numbers.
Capital investment expectations rose one point to an index of minus six. Thirteen per cent of executives now expect a decrease in capital investment, while just seven per cent anticipate an uplift.
According to Christine Christian, Dun & Bradstreet's CEO, business confidence has fallen away dramatically as the economy has continued to slow.
"The expectations of business executives have continued to fall, with sales and profits expectations particularly hard hit," said Ms Christian.
"These indices' have fallen for two consecutive quarters, a trend driven largely by declining sales and profits results and continually escalating business costs.
"With the economy expected to slow further at least in the short term, businesses need to be particularly diligent about managing their operations to ensure they remain financially stable throughout the challenging conditions."
Executive concerns regarding the credit market have increased. Seven in ten (72%) firms indicated that a tightening credit market will have a negative impact on operations - 11% anticipate a very negative impact.
Meanwhile fuel prices continue to have a detrimental impact on operations with nine in ten executives indicating that fuel costs are hurting their business - a 28% increase since March. This pressure is also evident in concerns for the coming quarter, with fuel prices remaining the top concern of executives for the second month running. Forty seven per cent of executives rate the cost of fuel as the most important influence on operations in the quarter ahead - the highest level of concern in 16 months.
Despite being overtaken by fuel prices, interest rates remain a significant concern. One third (33%) of executives indicate that interest rates are their primary concern in the quarter ahead. Retail executives continue to show the highest level of concern, with 45% ranking interest rates as the issue most likely to impact operations in the December quarter.
Just seventeen per cent of firms rate wages growth as their primary concern in the quarter ahead - a decline of eight points since May.
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, consumption is declining for the first time in eight years and growth in housing investment is falling rapidly.
"The pressures of high food and oil prices are forcing households to cut back on real levels of consumption," said Dr Ironmonger.
"June quarter data from the Bureau of Statistics revealed that growth in the trend volume of retail sales was in negative territory for the first time since the June quarter of 2000. The June quarter also brought a further decline in the number of new dwelling approvals, indicating the reluctance of families to enter into new long-term financial commitments.
"With demand growth slowing rapidly the Reserve Bank is unlikely to raise the cash rate this week and could begin to cut rates before the end of 2008 despite continuing high inflation."
The D&B index for expected sales is down seven points to -23, with 25% of executives expecting an increase in sales and 48% expecting a decrease. The profits index is down eight points to -29, with 21% of executives expecting profits to rise and 50% expecting a fall.
Employment expectations are down four points to an index of -15, with 11% of executives expecting an increase in staff and 26% expecting a reduction. Capital investment expectations are up one point to an index of minus six, with 7% of executives expecting an increase and 13% expecting to cut spending. Inventories expectations are down three points to an index of -12.
The selling prices index is up three points to an index of 54, with 59% of firms expecting to raise prices and 5% expecting to decrease them.
For further information, or to arrange an interview, please contact:
Danielle Woods
D&B PR Manager Australia & New Zealand
(02) 8270 2926
Dr Duncan Ironmonger
D&B Economic Consultant
(03) 8344 2131
About the Survey
D&B Australasia conducts latest Business Expectations Surveys every month. Each quarter over 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 193 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.
The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.
Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.
Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.
