The results from Dun & Bradstreet’s January Business Expectations Survey have highlighted a third consecutive period of subdued expectations, with businesses reporting a pessimistic outlook for the second quarter of 2016.

However, the Employment outlook has improved, with the index up to 13.7 points, compared to 12.0 points in the March quarter of 2016. Although the percentage of businesses intending to employ more staff fell from 24.1 per cent in the first quarter of 2016 to 22.0 per cent in the second quarter, the percentage of businesses expecting a decrease in employee numbers dropped from 12.1 per cent to 8.4 per cent over the same period.

The Selling Prices Index also improved steadily over the period, from 15.1 points to 19 points. Of the businesses surveyed, 27.5 per cent expect to increase prices over the June 2015 quarter, while 9.2 per cent are likely to reduce prices. The remaining 63.3 per cent of businesses are unlikely to change pricing levels.

Dun & Bradstreet’s Business Expectations Index, the average of the survey’s measures of Sales, Profits, Employment and Capital Investment, has fallen to 16.5 points for the second quarter of 2016, down 2.4 points from 18.9 points for Q1 2016, and a fall of 3.6 points from 20.1 points for Q2 2015. Nonetheless, it is significantly higher than the 10-year average of 7.0 points, and, despite some fluctuations, expectations have generally risen over the past three years.

Overall, businesses reported lower expectations for Sales, Profits and Capital Investment for the second quarter of 2016 compared to the first quarter, with the figures dipping by 5.7 points, 3.1 points and 2.6 points respectively.

According to Adam Siddique, Head of Group Development at Dun & Bradstreet, the results highlight the entrenched caution that pervades business sentiment in most sectors of the economy, despite the fundamentals that suggest such pessimism may not be warranted.

“We are observing a persistent lack of conviction with business expectations in almost all categories we survey, which reinforces the wait-and-see approach that we’ve reported over recent months. Not surprisingly, key movements in expectations indices have tended to follow official economic announcements in recent times, such as the employment outlook edging higher in this survey following recent strong labour market data,” Mr Siddique said.

“Of particular concern is the collapse in business expectations in the retail industry, which was widely acknowledged to have experienced a very strong Christmas trading season. With a favourable labour market and consumer sentiment being generally positive, we wouldn’t have expected the outlook for retailers to decline so sharply, so we’ll be keenly monitoring this space in the months ahead given the importance of the retail sector to the broader economy,” he added.

On an industry level, the Business Expectations Index saw declines across five of the seven industries surveyed. The two exceptions were the Construction industry, where the index jumped from 11.3 points to 22.8 points, and the Finance, Insurance & Real Estate industry, with expectations increasing from 19.6 points to 28.1 points.

In contrast, expectations within the Retail industry have fallen dramatically since the Christmas period, with the figure dropping from 29.9 points for the December quarter of 2015 to 20.6 points for the March quarter of 2016, then plunging to 6.7 points for the June 2016 quarter.

According to Stephen Koukoulas, Economic Advisor to Dun & Bradstreet, "the general pull-back in overall business expectations has continued despite the bulk of the news on the economy remaining solid. The only element where business expectations lifted was Employment, which fits with the recent run of official labour market data showing solid jobs growth. All components other than Expected Selling Prices have edged lower".

In contrast to the more pessimistic Business Expectations Index, the Business Actuals Index saw its third consecutive increase over the December quarter of 2015, up 1.9 points from 11.0 points to 12.9 points, an increase of 10.8 points from its 10-year average of 2.1 points. The index saw improvements across all components except Profits. In particular, the Actual Employment index performed strongly, with the figure jumping from 5.5 points to 9.7 points, while the Actual Sales index lifted from 19.1 points to 22.6 points.

\Although the Actual Profits Index fell over the fourth quarter of 2015, dropping from 8.5 points to 7.4 points, the latest figure is still higher than the first and second quarter numbers (4.8 points and 7.3 points respectively), and significantly higher than the ten-year average of -3.8 points.

"In terms of the actual performance of the economy, businesses noted a lift in all indicators other than Profits which only edged a fraction lower. Most impressive were increases in Actual Sales, Employment and Capital Investment. These indicators bode well for the December quarter GDP results which will be published next month," Mr Koukoulas said.

"The mixed news on the economy should ensure the RBA leaves official interest rates on hold at its meeting today and probably for many months to come," Mr Koukoulas added