Sales outlook hits 14-year high

This year's gradually improving business outlook looks set to continue into 2015, with the latest survey of Australian firms revealing that an increasing number expect to lift their sales and profits, sell their goods and services at higher prices, and invest more in their operations during the first quarter of the New Year.

Businesses are particularly upbeat about sales, with Dun & Bradstreet's Business Expectations Survey revealing that 53.2 per cent expect increased sales in Q1 2015 compared to last year, while just 7.5 per cent forecast a decline. This response has lifted D&B's sales expectations index to 45.8 points, up from 27.5 points last year and to its highest level since Q2 2000.

After diverging during the year, as expectations outpaced actual activity, reported sales have also increased, moving to 16.9 points for Q3 2014, up from 11.6 points in the previous quarter and 7.5 points at the same time last year.

BEX q1 2015 - prelim - chart 1

The increase in sales expectations beyond the boost expected in the Christmas period underscores the resilience in the business sector. D&B's survey has also found that 71 per cent of businesses are more optimistic about growth in the next 12 months compared to the previous year; the strongest response recorded in 2014.

According to Gareth Jones, CEO of Dun & Bradstreet-Australia and New Zealand, the more positive business outlook for next year follows signs of gradual improvement in the local economy.

"After a 2013 during which businesses were motivated by risk minimisation, this year has been one of slowly-building optimism, while these latest figures suggest that 2015 will see more businesses capable of growth," Mr Jones said.

"Although still below trend, D&B is forecasting a lift in Australia's GDP growth from 2.2 per cent to 2.5 per cent in 2015, while a more accommodating currency level and a stronger United States economy will support business optimism.

"Consumer confidence, however, appears to be the missing piece in the recovery puzzle and one with the potential to derail the business sector's capacity to grow and drive a new phase in the economy's development," Mr Jones added.

BEX q1 2015 - prelim - chart 2

Following two flat quarters, expectations for higher earnings have lifted to a 10-year high as 41.9 per cent of businesses anticipate improved profits during the first three months of 2015, while 11 per cent expect a decline and 47.1 per cent an unchanged result.

Profits looks set to be supported by an increase in the number of businesses planning to raise their prices in Q1 2015. While the majority of businesses expect to leave prices unchanged, 31.2 per cent intend to increase selling prices while just 4.2 per cent will discount. This has taken D&B's selling prices index to 26.9 points, up from 19.5 at the same time last year.

The slow crawl in planned business spending has continued into the New Year, with D&B measuring slight increases in expectations for capital investment and employment. 

With one-in-four businesses expecting to hire staff during Q1 2015, the employment index has lifted year-on-year from 8.8 points to 16.6 points. Similarly, the capital investment index has moved from 7.2 points to 16.8 points.

BEX q1 2015 - prelim - chart 3 

The sales outlook is strongest in the wholesale and retail sectors, where 59.6 per cent and 60.1 per cent of businesses respectively are expecting increased trade, while the finance, insurance and real estate sector is anticipating the biggest jump in profits.

Construction sector businesses have the most active plans for employment, with one-in-three intending to take on new staff during the first quarter of next year.

"The view from the business sector is very positive, with the data on sales and profits suggesting a period of stronger economic growth into the New Year," said Stephen Koukoulas, Economic Advisor to Dun & Bradstreet.

"While the news on expected sales is very strong, there is some concern that actual figures for reported sales have fallen short of expectations - it would be disappointing if this most recent surge in optimism failed to materialise.

"The slow but steady rise in expected employment and capital expenditure readings is encouraging; these are the components of the Business Expectations Survey that need to keep moving higher if we are to be confident that the economy is moving onto a stronger path," Mr Koukoulas noted.