Business expectations for sales, profits and employment have bounced back for the three-month period to 31 December 2016, according to Dun & Bradstreet’s July Australian Business Expectations Survey. The surprising turn of events follows recent market uncertainty as a result of the shock ‘Brexit’ vote and the Australian federal election result.
Dun & Bradstreet’s Business Expectations Index, the average of the survey’s measures of Sales, Profits, Employment and Capital Investment, has increased to 17.9 points for the fourth quarter of 2016, up from 12.3 points for Q3 2016, but down from 21.8 points in Q4 2015. The preliminary Q3 result is 10.3 points above the 10-year average of 7.6 points.
According to Stephen Koukoulas, Economic Advisor to Dun & Bradstreet: “There has been an impressive and welcome surge in business expectations in the post-election period. Expected profits, employment and sales have all jumped sharply, which bodes well for the economy over the second half of 2016. Indeed, the data for the Business Expectations Index suggest economic growth averaging around 3 per cent over that time.”
“In line with the recent upturn in the official data for quarterly inflation, expected selling prices have also increased and while there is no need for concern about an upswing in inflation pressures, it does suggest that the low point for inflation has passed,” Koukoulas added.
“The RBA will be pleased to see the improvement in business expectations, even though it is still likely to cut interest rates further to help ensure the positive tone in the business sectors translates to a stronger economy over the remainder of 2016 and into 2017.”
In a further positive sign, the Actual Profits Index increased to its highest level since 2015, reaching 9.1 points for Q2 2016. This was driven by increased profitability across all sectors, with the exception of Transport, Communications and Utilities. The Actual Sales and Actual Employment indices also showed signs of improvement, while Actual Capital Investment and Actual Selling Prices were down.
The Profits and Employment Expectations indices climbed to their highest levels for the year, while the Sales Expectations Index also markedly improved. The brighter outlook in the Retail and Construction sectors for the final quarter of 2016 are in contrast to the multi-year lows in expectations for Q3 2015.
The Wholesale sector reported the most positive outlook, with its Sales Expectations Index increasing to its highest level in 16 years at 52.5 points. The industry’s Employment and Profits Expectations indices have also risen to 13-year highs. However, the sector’s Selling Prices Expectations Index has fallen to a six-year low of 8.4 points.
The latest survey found 15.4% of businesses perceived weak demand for products and services in the year ahead as the biggest barrier to growth, compared to more than 20.0% for each of the past 12 months. However, an increasing number of businesses in the Services, Construction, Transport, Communications and Utilities sectors believe utilities and operating costs will be the most inhibiting factors to growth in the year ahead.
More than half of all firms surveyed said the federal election result would have no impact on their businesses. While more than one-fifth of retail firms said the election result would have a negative impact on their businesses, almost a quarter of businesses in the Services, Transport, Communications and Utilities sectors believe the result will lead to positive outcomes.