11 March 2008
Promising signs for an easing of inflationary pressure
Interest rates remain the primary concern of executives
The latest D&B National Business Expectations Survey shows
Download the Mar-08 detailed survey's results.pdf (232KB)
Outlook for June quarter 2008
- Expectations for selling prices are down five points on last months survey
- The outlook for capital investment remains weak with the overall index at 2 per cent
- Expectations for sales and profits growth have fallen, sales are down five points and profits have dropped 12 points from December quarter highs
- The outlook for employment growth has returned to negative territory
- Issues expected to influence operations in the June quarter 2008
- Concerns regarding interest rates remain unchanged since the previous survey. Thirty nine per cent of executives expect interest rates to be the most important influence on their business in the quarter ahead
- Wages growth concerns have overtaken fuel prices, with twenty seven per cent of executives expecting wages growth to be the most important influence on their business in the quarter ahead. An increase of 14 per cent since December, this index has reached its highest level in eight months
- Twenty six per cent of executives expect fuel prices to be the most significant influence on operations in the coming quarter, down 5 per cent on the previous survey
Tightening Credit Market
- Executive concerns regarding the credit market remain high, with 56 per cent expecting a tightening market will have a negative impact on operations
Actual for December quarter 2007
- Growth in sales was the highest since the March quarter 2004
- Selling price rises were the same as the September quarter
- Capital investment growth continued in positive territory
- Employment growth was flat after a positive September quarter
- Profits growth returned to negative territory after a positive September quarter
Media Release
The latest Dun & Bradstreet Business Expectations Survey is showing early signs of success in the fight against inflation, with a five point decrease in selling prices expectations since the previous survey.
The survey reveals that fifty seven per cent of firms now anticipate higher selling prices in the June quarter than a year earlier, while three per cent expect a decrease. This result comes on the back of national accounts and retail sales figures which indicate that domestic spending has started to moderate.
Following high December quarter expectations, the outlook for growth in profits has declined to an index of zero. Thirty two per cent of executives now expect an increase in profits and thirty two per cent expect a decline. This flat growth outlook reflects the impact of lower sales volumes and higher costs.
Sales growth expectations have also declined from December quarter highs, with 38 per cent of executives now expecting an increase in sales growth in the June quarter. Despite the decline the sales index is significantly higher than twelve months ago, with sales growth expectations up thirteen points on the June 2007 quarter. The net retailers' sales expectations index is particularly strong; at twenty nine it is fourteen points above the all firms index of fifteen.
Expectations for capital investment have strengthened marginally with the overall net index now at two per cent. Durables manufacturers are showing quite strong expectations for growth in capital investment with the index at seven per cent.
The employment indicator has returned to negative territory after one quarter in the positive. Twelve per cent of executives now expect to have more staff in the quarter ahead than they did a year ago; thirteen per cent expect to decrease staff numbers.
Executive concerns regarding the tightening credit market remain high, with more than half (56%) of executives expecting a tightening of credit will have a negative impact on operations. Meanwhile just nine per cent of executives anticipate that they will seek finance or credit to help their business grow in the quarter ahead. These findings come as the RBA warns that banks will make borrowing harder as part of the process of reigning in excess growth in the economy.
According to Christine Christian, Dun & Bradstreet's CEO, early indications of an economic slowdown are positive however the wide reaching impacts of inflation are likely to continue impacting business for some time.
"Early signs of an economic slowdown are beginning to show through in executive expectations for sales, profits and selling prices. National accounts data and retail sales figures are also indicating a slow down," said Ms Christian.
"The impact of the high cost of funding and the tighter credit market are being seen in expectations for business growth - less than ten per cent of executives expect to seek finance to grow their business in the coming quarter.
"All of these figures indicate that the RBA's fight against inflation is beginning to take effect. However despite this, it is likely that inflationary pressure will continue to have wide-reaching impacts on the economy for some time."
Topping the list of concerns this month, thirty nine per cent of executives rank interest rates as the most important influence on operations. This figure remains unchanged since the previous survey however concerns from the retail sector have increased by eight per cent. Fifty three per cent of retail executives now rank interest rates as the most significant influence on operations in the coming quarter. The continued high level of concerns regarding interest rates, particularly by retailers, comes as the official cash rate has reached a 12 year high.
Wages growth has overtaken petrol prices as a primary concern for executives. An increase of 14 per cent in this index since December has pushed concerns to their highest level in eight months. Twenty seven per cent of executives now expect wages and salary growth to be the most important influence on their business in the quarter ahead. This relatively steep increase is likely a reflection of executive concerns that high inflation figures could feed back into wages expectations.
Petrol price concerns have eased slightly but remain high as oil prices continue their surge above USD $100 a barrel. Twenty six per cent of executives rate the cost of fuel as the most important influence on operations. Meanwhile the impact of recent movements in petrol prices remains unchanged since the previous survey, with 78 per cent of executives noting a negative impact on operations.
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the Australian economy needs to see an increase in capacity and a reduction in demand if inflation is to be constrained in 2008.
"Capacity increase will be a slow process dependent on increases in labour supply and infrastructure. As a result, all official policy action is focused on quickly reducing demand," said Dr Ironmonger.
"According to the December quarter national accounts and retail sales for January, a slow down in consumer spending is under way. A continuation of this slow down is critical if inflation is to ease this year.
"The Reserve Bank pushed the cash rate up to 7.25% last week. This move combined with other increases in the cost of funds has resulted in home mortgage rates reaching a level of around 9%; this may be sufficient to put the inflation genie back in its bottle."
The D&B index for expected sales is down three points to 15, with 38% of executives expecting an increase in sales and 23% expecting a decrease. The profits index is down eight points to zero, with 32% of executives expecting profits to rise and 32% expecting a fall.
Employment expectations are down four points to an index of minus one, with 12% of executives expecting an increase in staff and 13% expecting a reduction. Capital investment expectations are up one point to an index of two, with 8% of executives expecting an increase and 6% expecting to cut spending. Inventories expectations are down four points to an index of minus two.
The selling prices index is up one point to an index of 54, with 57% of firms expecting to raise prices and 3% expecting to decrease them.
For further information please contact:
Danielle Woods
D&B PR Manager
W: 02 8270 2926
Dr Duncan Ironmonger
D&B Economic Consultant
W: 03 8344 2131
About the survey
D&B Australasia conducted the latest Business Expectations Survey in February 2008. 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.
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 209 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.
