Businesses are optimistic going into the final quarter of 2016 following an improved performance in the second quarter. The results from Dun & Bradstreet’s August Business Expectations Survey show higher expectations for sales, employment, selling prices and profits for Q4 compared to Q3. The upbeat outlook reflects business attitudes regarding the results of July’s federal election, where positivity continues to outstrip pessimism.
According to Stephen Koukoulas, Economic Advisor to Dun & Bradstreet, “The positive tone in business expectations since the election has been sustained and the results point to a period of solid economic expansion right through to the end of 2016. Encouragingly, expected sales, profits and employment have lifted further, and all well above their long-run averages.”
Dun & Bradstreet’s Business Expectations Index, the average of the survey’s measures of Sales, Profits, Employment and Capital Investment, has increased to 17.8 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 interim Q4 result is 9.9 points above the 10-year average of 7.9 points.
Mr Koukoulas added, “These readings for business expectations suggest the economy is growing at close to trend and that the unemployment rate will remain around 5.75% – or could even edge lower – in the months ahead. It is good news.”
The Profit Expectations Index (the number of businesses expecting an increase in profits minus the number expecting a decrease) was a standout performer, leaping from 9.4 points to 19.5 points. Only the Capital Investment Index saw a decline, slipping from 10.3 points to 8.7 points – its equal-lowest point since Q1 2014.
“As is evident in the Australian Bureau of Statistics data, capital expenditure remains problematic, which is one part of the economy that the RBA and Treasury would like to see stronger. Expectations for selling prices are ticking higher which suggests the low point in the inflation rate may be about to pass,” Mr Koukoulas added.
“Altogether, the business expectations are positive and suggest the economy continues to transition well from the end of the mining boom,” he concluded. The increased optimism for the December quarter marks a rebound in business sentiment, after the Business Expectations Index declined for three successive periods in the March, June and September quarters. Across this nine-month period, the index fell from 21.8 points to 12.4 points.
The brighter outlook may have been buoyed by strong results during the June quarter of 2016: the Business Actuals Index jumped from 6.1 points in Q1 to 9.0 points in Q2, after slumping from 12.7 points in the final quarter of 2015. However, the result is still significantly lower than the 10-year high of 15.3 points seen in December 2014.
Of the seven industries surveyed, the Construction industry returned particularly positive results, with increases across both expected and actual indices for sales, employment, profits and selling prices. The Construction industry’s Capital Investment Expectation Index was up, while actual Capital Investment fell slightly. Most notably, its Profit Expectations Index surged from -5.4 points to 24.6 points, while its Actual Profit Index jumped from -13.4 points to 14.5 points. Its overall Business Expectations Index shot from 3.0 points in the September quarter to 15.2 points in the December quarter, while its overall Business Actuals Index for the June quarter was 9.3 points, up from -4.2 points in the March quarter.
Meanwhile, manufacturers were less optimistic after a challenging second quarter. Manufacturing was the only industry to see a decline in its Business Expectations Index (18.2 points, down from 19.5 points), and one of just two industries with a lower Business Actuals Index (9.2 points, down from 11.5 points). It was the only industry expecting lower profits in the coming quarter (2.6 points, down from 6.8 points).
The August Business Expectations Survey revealed a notable shift in sentiment when it comes to late or missed payment of bills. Businesses indicated credit cards would be the payment they would most likely skip should they need to, as opposed to suppliers, which has been the top answer in every monthly survey since February 2014, with the exception of the December 2014 survey. This reflects a downward trend which began earlier this year, with the percentage of survey respondents saying they would choose to miss paying suppliers dropping from 43% in March to 27% in August. During the same timeframe, the percentage of respondents that would opt to miss a credit card payment has increased from 17% to 28%.
Businesses across all industries remain largely consistent in their responses regarding the impact of July’s federal election. Some 20.7% of all companies surveyed said the results would have a positive impact on their business, while 12.0% expect a negative impact. 58.5% of companies said the results would not impact their business, and the remaining 8.8% were unsure. The Finance, Insurance and Real Estate industry gave the most positive response, with 27.1% of businesses anticipating improved business operations as a result of the election. By comparison, just 17.2% of Retail businesses expect a positive outcome.