Business owners are optimistic about seeing a jump in sales during the run-up to Christmas, with retailers and the services industry lifting their forecasts for the final quarter of the year despite signs that consumer confidence in Australia is faltering.

According to Dun & Bradstreet's latest Business Expectations Survey, 47 per cent of businesses expect higher sales levels compared to last year, while 11 per cent forecast a decline and 42 per cent similar trade. This positive outlook has lifted the sales expectations index to 36.2 points, up from 7.9 points at the same time last year.

Despite disappointing figures from the ABS showing sales growth of just 0.1 per cent during August, concerns over consumer confidence, and a worrying rise in Dun & Bradstreet's Consumer Financial Stress Index, the retail and services sectors expect consumers to open their wallets in the months ahead. The retail sales index has risen to 27.1 points, up from 9.7 points last year, while the services sales index has jumped to 43.4 points, up from 4.0 points in 2013.

Expectations for increased has trade lifted across all other sectors surveyed, with the sales index for wholesalers hitting 41.7 points (up from 8.8); construction: 29.1 points (up from 0.2); transport, communications, utilities: 41.8 points (up from 8.1 points), and finance, insurance, real estate: 39.7 points (up from 7.2).

BEX Q4 2014 - final - chart 1

While an increasing number of businesses are expecting to sell more in the December quarter, discounting is not planned. Twenty-four per cent of businesses intend to raise the prices of their goods and services, while six per cent will cut prices, leaving the majority unchanged.

These pricing plans have lifted the selling prices index to 17.5 points, from 10.3 points last year, although it remains far from pre-GFC levels and well below its 10-year average of 27.1 points.

BEX Q4 2014 - final - chart 2

According to Dun & Bradstreet director Steve Brown, businesses look set to finish 2014 in relatively healthy shape.

"While we often see an uptick in business expectations for the Christmas period, the current outlook appears stronger and more broad-based than recent years," said Mr Brown.

"In addition to higher sales and profits, expectations for increased capital investment and employment are stronger than in 2013, borrowing intentions are stable, and the proportion of businesses more optimistic about growth this year, compared to last year, is holding at the 60 per cent mark."

"These latest numbers consolidate 12-months of generally positive expectations from the business sector. Questions remain, however, on the health of consumer finances, and whether Australians are willing and able to increase their discretionary spending over the next few months."

BEX Q4 2014 - final - chart 3

Despite expectations of rising sales and steady profits, cash flow continues to be an area of concern for businesses, with 31 per cent indicating it is the issue most likely to impact their operations during Q4 2014. This follows last month's company insolvencies report from ASIC which revealed that inadequate cash flow or high cash use was the most common cause of business failure in the 2013-14 financial year.

Underscoring the difficulties facing businesses in regulating their cash flow are additional findings from D&B's Business Expectations Survey that show 35 per cent of businesses have had a customer or supplier become insolvent or otherwise unable to pay them during the year.

Trade suppliers are the most likely to be overlooked by businesses unable to meet all of their payment obligations, followed by a credit card and phone bill.

BEX Q4 2014 - final - chart 4

About the Survey

Each month business owners and senior executives representing the manufacturing; wholesale; retail; construction; transport, communications and utilities; finance, insurance and real estate; and services sectors across Australia are asked if they expect increases, decreases or no changes in their upcoming quarterly sales, profits, employment, capital investment and selling prices. Since its introduction in Australia in 1988, the survey has proven to be a highly reliable measure of economic performance.

The index figures used in the survey represent the net percentage of survey respondents expecting higher sales, profits, etc., compared with the same quarter of the previous year. The indices are calculated by subtracting the percentage of respondents expecting decreases from the percentage expecting increases.

Methodology

Each month D&B asks a sample of executives if they expect an increase, decrease or no change in their quarter-ahead sales, profits, employees, capital investment and selling prices compared with the same quarter a year ago.

The executives are also asked for actual changes over the twelve months to the latest completed quarter.

The Australian survey began in March 1988 obtaining some 900 responses in the third month of each quarter. Since the middle of 1999, the survey has been conducted monthly, initially with about 300 responses each month. From September 2000, responses have been obtained from 400 executives each month.

From July 2005, to simplify the interpretation of the survey data, the results have been presented as a sequence of preliminary, interim and final indexes. The 400 responses from the first month of each quarter give preliminary estimates of the quarter-ahead expectations and the quarter behind actual indexes. The 400 responses from the second month of the quarter are combined with those from the first month as interim estimates of the indexes based on 800 responses. The 400 responses from the third month are combined with those from the first two months to give the final expectations and actual indexes based on all 1,200 responses obtained during each quarter.