10 June 2008
Eight in ten executives hurt by rising fuel prices
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To listen to an audio broadcast with Christine Christian, D&B's CEO, click on the following link: http://www.brr.com.au/event/46628 |
The latest D&B National Business Expectations Survey shows
Outlook for September quarter 2008
- All indexes except selling prices have entered negative territory
- Sales and profits growth expectations have fallen sharply, down 33 and 29 points respectively from December quarter highs
- Employment growth expectations are at the lowest point since June 1991
- Capital investment expectations have dropped 11 points to an index of minus six
- Selling price expectations have climbed five points to an index of 50
Fuel prices
- Climbing 21 per cent since March, 82 per cent of executives have reported that soaring fuel prices have had a negative impact on their business
Tightening credit market
- Increasing nine per cent since the previous survey, two thirds (67%) of executives now anticipate that a tightening credit market will have a negative impact on operations
Consumer spending
- Almost four in ten (38%) executives indicated they have seen a moderate or significant slowdown in consumer spending in the past month, up two per cent since the previous survey
Actual for March quarter 2008
- Growth in sales was negative for the first time in five quarters
- Profits growth was at the lowest level since the September quarter 2006
- Employment growth was negative and the worst since the December quarter 1992
- Capital investment growth was negative and the lowest since the question's introduction in June 1994
- Selling price rises were down one point on the December quarter 2007
Australia's business executives are anticipating a bleak September quarter as high fuel prices, continued inflationary pressures and slowing consumer spending hurt sales and profit margins.
The latest Dun & Bradstreet (D&B) Business Expectations Survey reveals that businesses are expecting a steep decline in sales, profits, employment growth and capital investment, with all of these indexes now in negative territory. This comes on the back of an increase in the number of executives reporting negative impacts on their business due to soaring fuel prices (climbing 21% since March to 82%) and more organisations being hit by a slowdown in consumer spending (up 2% in one month to 38%).
Supporting expectations that inflationary pressure will continue throughout the year, the selling prices indicator has risen five per cent to an index of fifty. Despite the increase, the index remains lower than four of the last five quarters, now fifty seven per cent of executives expect to raise selling prices in the September quarter.
Reflecting poor results in the March quarter, expectations for sales growth have dropped 33 points from December quarter highs. Forty per cent of firms saw a decrease in sales in the March quarter and the same percentage of executives anticipate a fall in sales in the coming quarter.
Non-durables manufactures have been particularly hard hit, with the actual sales index falling 45 points from the December to the March quarter. Despite being the only industry with a positive actual sales index for the March quarter, durables manufacturers have also reported a negative outlook for September quarter sales.
Profits expectations have also fallen sharply, down 29 points since the December 2007 quarter. This decline in expectations is a reflection of poor March quarter results, particularly for non-durables manufacturers and retailers.
The employment indicator has hit its lowest level in 17 years. Twenty per cent of executives expect to have fewer staff in the quarter ahead than they did a year ago while just 10 per cent expect to increase employee numbers.
A significant weakening in capital investment expectations has resulted in the overall index dropping to minus six however durables manufacturers remain just inside positive territory at an index of two.
According to Christine Christian, Dun & Bradstreet's CEO, the impacts of a slowing economy combined with high petrol prices are impacting executive expectations for the September quarter.
"Poor results in the March quarter combined with continued pressures from inflation, the credit market, high fuel prices and slowing consumer spending have led the steep decline in executive expectations for the September quarter," said Ms Christian
"The business community is now anticipating a rapid slowdown in activity in the coming months.
"Adding to the list of challenges, better than expected GDP results for the March quarter have fuelled speculation regarding the need for a further rate rise. Any further increase in the cost of credit will likely add pressure to a number of businesses, with SMEs likely to feel the greatest burden."
Up nine per cent since the previous survey, credit market turmoil continues to represent a significant concern. Two thirds (67%) of firms surveyed indicated that a tightening credit market will have a negative impact on operations in the coming quarter. Ten per cent anticipate a very negative impact.
Despite the RBA keeping interest rates on hold for the past three months suggestions that rates may need to rise again to contain inflation are evident in executive concerns, particularly in the retail sector. Almost half of firms surveyed (47%) rank interest rates as the most important influence on operations in the new financial year, this jumps to 57% for retail executives.
Fuel price concerns have increased as petrol prices have continued to rise. Twenty five per cent of executives now rate the cost of fuel as the most important influence on the business in the year ahead. Meanwhile wages growth concerns have risen nine per cent to be on par with fuel prices.
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the Australian economy has started to slow.
"Last week's March quarter GDP numbers confirm the start of an economic slowdown. Although income tax cuts in the Federal Budget will provide some stimulus, interest rates and credit will remain tight for the remainder of 2008," said Dr Ironmonger.
"The Reserve Bank left the cash rate unchanged at its last three meetings however it could make a further increase if demand does not continue to moderate or if expectations of continued high inflation begin to affect wage and price setting.
"Tight monetary conditions, high petrol prices and low consumer sentiment should continue to dampen consumer spending and housing construction through the next few quarters."
The D&B index for expected sales is down 28 points to -13, with 27% of executives expecting an increase in sales and 40% expecting a decrease. The profits index is down 20 points to -17, with 23% of executives expecting profits to rise and 40% expecting a fall.
Employment expectations are down 14 points to an index of -10, with 10% of executives expecting an increase in staff and 20% expecting a reduction. Capital investment expectations are down 12 points to an index of minus six, with 9% of executives expecting an increase and 15% expecting to cut spending. Inventories expectations are down 10 points to an index of -10.
The selling prices index is up five points to an index of 50, with 57% of firms expecting to raise prices and 7% 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.
