6 May 2008
Economic conditions set to deteriorate sharply
Executives anticipate a rapid slowdown in activity in the September quarter
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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/45399 |
The latest D&B National Business Expectations Survey shows
Outlook for September quarter 2008
- All indexes except selling prices have moved to negative territory
- Expectations for sales and profits growth have fallen sharply, down 31 and 27 points respectively from December quarter highs
- Reaching the lowest point since the December quarter 1992 the outlook for employment growth is down 16 points
- The outlook for capital investment has dropped 11 points since the previous quarter to an overall index of minus five
- Expectations for selling prices have risen slightly but remain lower than four of the last five quarters
Issues expected to influence operations in the September quarter 2008
- Concerns regarding interest rates have surged with 53 per cent of firms expecting this issue to be the most important influence on operations in the quarter ahead
- Twenty per cent of executives expect fuel prices to be the most significant influence on operations in the September quarter, up five per cent since the previous survey
- Down five per cent since the previous survey, sixteen per cent of executives expect wages growth to be the most important influence in the coming quarter
Tightening credit market
- Despite a 13 per cent decrease since the previous survey, more than half (58%) of executives anticipate that a tightening credit market will have a negative impact on operations
Actual for March quarter 2008
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Growth in sales was negative for the first time in five quarters
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Profits growth was at the lowest level since the September 2006 quarter
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Employment growth was negative and the worst since the June 1992 quarter
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Capital investment growth was negative and the lowest since the question's introduction in June 1994
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Selling price rises were down one point on the December 2007 quarter
Economic conditions are expected to deteriorate with a rapid slowdown in activity in the September quarter as global turbulence and domestic inflationary pressures buffet Australian businesses.
The latest Dun & Bradstreet (D&B) Business Expectations Survey shows a steep decline in expectations for sales, profits, employment growth and capital investment, with all of these indexes now in negative territory. The survey also shows that almost four in ten executives have noticed a change in consumer spending, with 36 per cent indicating that they had experienced either a moderate or significant slowdown in the past month.
Expectations for sales growth have fallen sharply, dropping 31 points from high December quarter growth expectations. The expectations for the coming quarter are a reflection of poor sales results in the March quarter where the number of firms that saw a decrease (37%) in sales outweighed those that saw an increase (33%).
Non-durables manufacturers were particularly hard hit, the actual sales index fell 45 points from the December to the March quarter while the expected index has dropped 42 points since the June quarter. Durables manufacturers - the only industry with a positive sales growth outlook for the September quarter - reported relatively strong growth in March quarter sales.
Profits expectations also fell away sharply, down 27 points since the December 2007 quarter. This decline in expectations can also be attributed to poor March quarter results, particularly for non-durables manufacturers and retailers. Durables manufacturers were the only sector to report positive growth in profits in the March quarter however their expectations for the coming quarter are negative.
The employment indicator has reached its lowest level in more than 15 years. Twenty one per cent of executives expect to have fewer staff in the quarter ahead than they did a year ago while just nine per cent expect to increase employee numbers.
A significant weakening in capital investment expectations has resulted in the overall index dropping to minus five however durables manufacturers remain in positive territory with an index of five.
According to Christine Christian, Dun & Bradstreet's CEO, Australian businesses are feeling the pressure of global and local economic factors.
"The Australian business environment is significantly more challenging than it was just twelve months ago," said Ms Christian.
"Global and local factors are buffeting Australian businesses and the impacts of this are evident in a significantly deteriorated outlook for the September quarter. The economic slowdown that is occurring is starting to bite businesses, many saw poor results in the March quarter and are anticipating that the challenges will only increase as we head into the second half of the year."
Despite a 13 per cent decrease since the previous survey, credit market turmoil continues to represent a significant concern for executives. More than half (58%) of firms surveyed indicated that a tightening credit market will have a negative impact on operations in the coming quarter. Four per cent anticipate a very negative impact.
Interest rates topped the list of executive concerns, particularly for those in the retail sector. More than half of firms surveyed (53%) ranked this issue as the most important influence on operations in the quarter ahead, climbing 17% since the previous survey. Meanwhile 68% of retail executives listed interest rates as their primary concern, reflecting the impact of higher rates on consumer budgets and discretionary spending.
Fuel price concerns have increased as petrol prices have continued to rise. Twenty per cent of executives now rate the cost of fuel as the most important influence on the business in the quarter ahead. The impact of petrol prices on operations is also increasing. Climbing 15 per cent since March, 76 per cent of executives have noted a negative impact on operations.
Wages growth concerns have declined, with just 16 per cent of executives expecting wages to be the most important influence on their business in the September quarter.
According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, tight monetary conditions are impacting the Australian economic climate.
"Tight monetary conditions have contributed to a slowdown in housing credit and retail sales growth, a decline in dwelling construction approvals and a sharp fall in consumer sentiment.
"Although inflation is now expected to take longer to fall back within the Reserve Bank's target zone, the Bank is likely to leave official rates unchanged at this week's meeting, with the next adjustment anticipated to be a downward movement.
"All eyes will be focussed on next week's Federal Budget, which is expected to bring cuts in personal tax rates and public spending," said Dr Ironmonger.
The D&B index for expected sales is down 26 points to -11, with 28% of executives expecting an increase in sales and 39% expecting a decrease. The profits index is down 18 points to -15, with 24% of executives expecting profits to rise and 39% expecting a fall.
Employment expectations are down 16 points to an index of -12, with 9% of executives expecting an increase in staff and 21% expecting a reduction. Capital investment expectations are down 11 points to an index of minus five, with 11% of executives expecting an increase and 16% expecting to cut spending. Inventories expectations are down 11 points to an index of -11.
The selling prices index is up two points to an index of 47, with 54% 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.
