As 2016 draws to a close, business confidence for 2017 remains strong. Dun and Bradstreet's December Business Expectations Survey shows that companies are expecting to see increased employment, profits, capital investment and selling prices for the first quarter of 2017 compared to the previous quarter.

However, expectations for sales have dropped back.

According to Stephen Koukoulas, economics adviser to Dun and Bradstreet: "In the last month, there has been a cooling in business expectations for key parts of the economy, even though the general tone of the Business Expectation Survey remains positive for the early part of 2017."

Dun & Bradstreet's Business Expectations Index, the average of the survey’s measures of Sales, Profits, Employment and Capital Investment, stands at 18.9 points for the March quarter of 2017, up 11.2 percent from 17.0 points for Q4 2016 and on par with the March 2016 figure. The final Q1 2017 result is 10.3 points above the 10-year average of 8.6 points. The index is currently at its highest point since the December quarter of 2015, when it reached 21.8 points.

"The area of some concern is the dip in expected sales, where some of the optimism at the end of 2016 has faded as firms prepare for the first quarter of 2017. Against that one soft spot, there remains a strong outlook for expected profits, employment and capital expenditure," Mr Koukoulas noted. "All of these indicators suggest that the surprise drop in the official GDP data for the September quarter was more an anomaly, rather than a precursor to a recession. Indeed, the D&B Business Expectations Survey data suggests the economy is performing well with little risk of recession in the near term," he added.

The Sales Expectations Index slipped from 30.1 points in the December quarter of 2016 to 28.1 points for the March quarter of 2017. For the March quarter of 2017, 36.9 percent of businesses expect to see an increase in sales compared to the March quarter of 2016, while 11.4 percent expected lower sales.

Despite the lower sales expectations, profit expectations continued to climb, as expectations for selling prices increased. The Profit Expectations Index moved from 17.1 points in Q4 2016 to 21.0 points in Q1 2017, with 34.0 percent of businesses expecting higher profits in Q1 2017 compared to Q1 2016, while 13.1 percent expect lower profits. The Selling Prices Expectations Index jumped from 9.3 points in Q4 2016 to 14.6 points in Q1 2017. Some 21.4 percent of businesses expect to increase selling prices in Q1 2017 compared to Q1 2016, and 6.9 percent expect to have lower selling prices. Both the Profit and Selling Price Expectations Indices are at their highest points in a year.

"There is an interesting trend unfolding in expected selling prices. Businesses are expecting to raise their selling prices into the new year which, if correct, suggests the economy could be near a turning point for inflation, from the very low levels seen in the year to the September quarter. It is noteworthy that many commodity prices are higher, including oil, which is an important input cost to business," Mr Koukoulas observed.

"In terms of the sectors, the least favourable outlook is for the Construction industry, which appears to be being held back by the ongoing weakness in mining investment and likely cooling in dwelling construction. The most upbeat sectors are Manufacturing – aided by the lower Australian dollar – and Services," Mr Koukoulas said.

The Construction industry had the lowest Business Expectations Index, dropping to 5.9 points for the March quarter 2017 from 9.8 points in the December quarter 2016 and 11.3 points in the March quarter 2016. Profit expectations were at an 18-month low at 3.6 points: 22.2 percent of Construction firms flagged higher profits in Q1 2017 compared to Q1 2016, while 18.6 percent anticipate lower profits. Meanwhile, at 9.8 points, Construction’s Sales Expectations Index was at its lowest since Q4 2013, when it reached 0.2 points. For the March quarter 2017, 25.8 percent of businesses expect higher year-on-year sales, compared to the 16.1 percent that expect lower sales.

The Manufacturing sector's Business Expectations Index jumped from 18.6 points in the December quarter 2016 to 24.2 points in the March quarter 2017, driven by a surge in its Profit Expectations Index from 16.4 points to 29.7 points – the highest Profit Expectations Index across all sectors. 38.6 percent of Manufacturers expect higher profits in Q1 2017 compared to Q1 2016, and 8.9 percent expect lower profits.

The Services industry had the highest Business Expectations Index for the March quarter 2017 at 24.8 points, up from 19.7 points in the December quarter 2016 but down from 25.4 points in the March quarter 2016. Its Capital Investment Expectations Index saw the most movement for Q1 2017, jumping from 7.1 points to 17.8 points. The Services industry had the highest Sales Expectation Index at 33.5 points: 43.0 percent of Services firms flagged higher sales in Q1 2017, while 9.5 percent expect a lower level of sales.

The Business Actuals Index dipped slightly from 8.9 points in the June quarter to 8.7 points in the September quarter. However, only the Actual Sales Index declined, falling from 15.5 points in the June quarter to 12.7 points in the September quarter: 32.6 percent of businesses reported higher sales in Q3 2016 than Q3 2015, while 19.9 percent reported lower sales. The decline in the Actual Sales Index in the September quarter reflects the 0.5 percent decline in GDP during the same period.

The indices for actual employment, profits, capital investment and selling prices were all higher for the third quarter of 2016 than the second. But compared to the third quarter of 2015, all five component indices were down, and the Business Actuals Index fell 20.7 percent from 12.7 points to its current 8.7 points.

Australian businesses appear largely unperturbed regarding the results of the US federal election in November. The vast majority (70.3 percent) said they expect the result to have no impact on their business. Some 6.6 percent expect a positive impact, while the number of businesses expecting a negative impact was slightly higher at 8.3 percent. 14.8 percent are unsure.

Of all industries surveyed, the Finance, Insurance & Real Estate industry had the strongest opinions on the matter: 13.8 percent expect a positive result, while 19.0 percent expect a negative result. 58.6 percent expect no impact and 8.6 percent are unsure.

"By industry, the Finance sector had the strongest view, it appears because of the impact of Trump on financial markets, most notably bond yields but also to a lesser extent the stock market. Indeed, in the immediate aftermath of the Trump win, there was considerable market volatility which is likely to have had a strong influence of the responses in this sector," Mr Koukoulas said.

Just 1.7 percent of Manufacturers, meanwhile, expect a positive outcome from Donald Trump’s election, compared to the 10.2 percent who foresee a negative impact: "Manufacturers had the largest net negative, in part it appears from any possible fallout from an escalation in trade tensions, if Trump follows through with aggressive import taxes or tariffs on Chinese manufactured goods," Mr Koukoulas said.