The results from Dun & Bradstreet’s December Business Expectations Survey suggest both caution and optimism in the Australian business landscape as 2016 kicks off.

The general outlook remained relatively muted, with businesses reporting lower expectations for Sales, Profits, Employment and Selling Prices for the first quarter of 2016 compared to the final quarter of 2015.

However, the investment outlook took a positive turn, with the Capital Investment Index up to 12.6 points, compared to 11.9 points in the December quarter of 2015. Some 23.1 per cent of businesses said they intend to increase spending on Capital Investment in the first quarter of 2016 compared to the fourth quarter of 2015.

The intention to increase Capital Investment in the coming quarter continues a recent trend: actual Capital Investment activity increased in both the June and September quarters. In the June quarter the index rose from 6.2 points to 8.3 points and in the September quarter it increased to 10.8 points.

According to Adam Siddique, Head of Group Development at Dun & Bradstreet, the latest results may indicate a shift in investment sentiment.

“We are finally seeing some positive movement in the Capital Investment space, which is encouraging and something we will track for further signs of improvement in the short-term. As flagged in last month’s survey, sustained business investment across all sectors is a key driver of future economic growth,” Mr Siddique said.

“The slight fall in the Employment Actuals Index is noteworthy given the surprisingly strong ABS employment figures released in December. Aside from seasonal fluctuations in jobs growth, we would expect to see Employment increase alongside Investment, as business activity ramps up.

“Looking farther afield, the US Federal Reserve has finally brought to an end an unprecedented period of zero interest rates. While it is too soon to assess the impact this will have on the domestic corporate landscape, we can be certain we are now entering a new phase for global monetary policy makers,” Mr Siddique added.

Dun & Bradstreet’s Business Expectations Index, the average of the survey’s measures of Sales, Profits, Employment and Capital Investment, has fallen to 18.9 points for the first quarter of 2016, down 2.9 points from 21.8 points in Q4 of 2015, and down 5 points from 23.9 points in Q1 of 2015. Nonetheless, it is significantly higher than the 10-year average of 6.8 points.

The Business Expectations Index was lower across five of the seven industries surveyed. The exceptions were the Transport, Communications & Utilities industry and the Finance, Insurance & Real Estate industry.

Transport, Communications & Utilities’ Business Expectations Index has been on an upward trajectory since the September quarter and now sits at 20.7 points. Meanwhile, Finance, Insurance & Real Estate scored the highest Business Expectations Index score of all industries in more than two years for the September quarter (32.2 points), but plummeted to 19.5 points for the December quarter. Expectations for the March quarter from the Finance, Insurance & Real Estate sector suggest increased optimism, with the Index edging up to 19.6 points.

Of the seven industries, Construction demonstrated the lowest expectations for the March quarter, with expectations for Sales, Profits, Employment, Selling Prices and Capital Investment all lower compared to the December quarter. The Construction industry’s individual Business Expectations Index dropped 8.4 points from 19.7 points to 11.3 points – the lowest Business Expectations Index score of all industries. Compared to the March quarter of 2015, all current indices for the Construction industry were lower.

When asked if they were generally more optimistic about business growth in 2016 compared to 2015, 55 per cent of Construction businesses said they were more optimistic while 35 per cent said they were less optimistic. This result represents the lowest level of optimism across all sectors. By comparison, the Services industry was the most optimistic sector in terms of growth in 2016, with 69.5 per cent of businesses saying they were more optimistic and just 18.6 per cent feeling less optimistic.

Despite the general downward trend in expectations, the December survey found that across all sectors, 65.6 per cent of businesses reported feeling more optimistic about growth in 2016 compared to 2015 – up from 64.5 per cent in November.

The Business Actuals Index continued to track upwards for the third quarter of 2015, up 0.9 points from 10.1 points to 11.0 points – more than 10 points higher than its 10-year average of 0.9 points. Businesses reported increased Sales, Profits, Selling Prices and Capital Investment for the third quarter compared to the second quarter. The only Actuals Index that fell was Employment, which slipped a marginal 0.1 point from 5.6 points in the June quarter to 5.5 points in the September quarter. Around 23 per cent of businesses said they had increased their employment levels in the September quarter, while 17.6 per cent said they had reduced their number of staff compared to the previous quarter.

Attitudes toward September’s change in federal leadership remain largely neutral: based on December’s survey, 55.6 per cent of survey respondents expect the change in Prime Minister and Treasurer will have no impact on their business. 33.7 per cent believe it will have a positive impact, and 3.6 per cent expect a negative impact. The remaining 7.3 per cent are unsure.

The highest Net Optimism score (percentage of businesses expecting a positive impact minus percentage of business expecting a negative impact from the leadership change) is seen in the Manufacturing industry, at 42.4 points, with 45.8 per cent expecting a positive impact. The lowest Net Optimism score is seen in the Retail industry, at 19 points. Some 12 per cent of retailers expect a negative impact from the change in leadership and Treasurer – more than three times the group average.

According to Stephen Koukoulas, Economic Advisor to Dun & Bradstreet, “The overall tone of the business sector has faded into the start of 2016. The index of business expectations has dipped after the late-2015 jump that appeared to be associated with the change in Prime Minister in September.”

Mr Koukoulas added, “The only positive component of the Business Expectations Survey is for capital expenditure, which has edged higher, helped, it appears, by low interest rates and a more positive outlook for the non-mining sector. More than offsetting this positive news are falls in expected sales, profits and employment.

“The big-picture view of the economy as 2016 kicks off is a continuation of the below-trend pace of growth. The economy is not doing poorly, but nor has it had the breadth of expansion that is required for the business sector to have confidence and a sustained lift in sales, profits and employment,” Mr Koukoulas noted.