Further weakness in business conditions is expected for the three-month period to 30 September 2016. According to Dun & Bradstreet’s June Business Expectations Survey, expectations for Sales and Selling Prices have plunged to their lowest levels since 2014, while the outlook for Capital Investment is showing signs of recovery.
The survey pre-dates the ‘Brexit’ vote and Australian Federal election which can only be expected to damage relatively fragile business confidence.
Dun & Bradstreet’s Business Expectations Index, the average of the survey’s measures of Sales, Profits, Employment and Capital Investment, has consolidated at 12.3 points for the third quarter of 2016, compared to 12.7 points for Q2 2016, and down from 17.6 points in Q3 2015. The figure is 5.0 points above the 10-year average of 7.3 points.
The Actuals Index halved to 6.1 points from 12.7 points last quarter, and brought an end to three consecutive quarters of growth. The Actual Employment Index plummeted to 2.3 points - its lowest level since late-2013, with the Construction and Retail sectors reporting more decreases than increases in staff numbers. Both sectors maintain a weak outlook for the quarter ahead.
According to Stephen Koukoulas, Economic Advisor to Dun & Bradstreet: “The slide in business expectations over the past year appears to have been arrested in the most recent survey. It should be noted that the survey was conducted prior to the shock Brexit vote, so the results must be treated with caution.”
Koukoulas also observed “there were some mildly encouraging signs, with expectations for capital expenditure edging up from the recent low point. There were, worryingly, signs of further weakness in expected sales and selling prices, the latter of which points to ongoing low inflation.”
All indices experienced a decline, with the exception of Capital Investment Expectations, which increased by 1.6 points. However, at 10.3 points, the index is still at its lowest level since mid-2014. Despite this, the Manufacturing and Services industries forecast significant improvement in conditions for the quarter ahead, particularly in respect to Sales, Profits, Employment and Capital Investment.
The Actual Profits Index fell to a four-year low of 1.1 points, while the Actual Employment and Actual Selling Prices indices fell to two-and-a-half year lows of 2.3 points and 8.4 points, respectively. The Construction industry was particularly hard-hit, with its Sales, Profits, Employment and Selling Prices plunging into negative territory.
The Construction sector also faces the bleakest outlook, with its Expectations Index falling to a three-year low of 3.0 points, compared to 11.3 points for the first six months of the year. The industry’s Profits Expectations Index plunged to -5.4 points, down from 5.6 points in Q2 2016 and 3.4 points in Q3 2015. The survey found 27.6% of Construction businesses believe their operations will be mostly influenced by consumer confidence in the quarter ahead, while an equal number believe cash flow is the biggest issue.
The Retail industry fared poorly for the first three months of the year, with its Actual Sales and Actual Employment indices falling to -3.9 points and -4.3 points respectively. The sector’s Sales Expectations, at 17.5 points, are also at their lowest level since Q4 2013, while Employment Expectations, at 0.2 points, are at their lowest level since Q3 2013.
Market shocks in the wake of the United Kingdom’s decision to withdraw from the European Union are expected to further impact economic confidence; however, interest rates are anticipated to remain low. The latest survey found 22.2% of businesses see weak demand for products and services as the biggest barrier to growth in the year ahead, down from 26.0% during the same period last year.
“The next few Business Expectations Surveys will, arguably, hold a great sway as they will reflect the business reaction to Brexit and the result of the recent Federal election. Any slide in expectations will likely see the Reserve Bank opt to cut interest rates to fresh record lows”, Koukoulas added.