Growth prospects remain mixed across the country

Uncertain economic conditions continue to impact optimism across the Australian business landscape, with sentiment softening for the final quarter of 2017. In Dun & Bradstreet's August Business Expectations Survey, businesses predicted lower sales, employment and selling prices for the December quarter, despite a general pick-up in business activity during the June quarter. However, capital investment and profits are tipped to rise.

"The uncertain outlook for the economy was confirmed in the latest Business Expectations Survey, which saw a pull-back in business optimism across most of the key components of the economy. Overall business expectations were flat into the December quarter confirming a lower level of optimism than had been evident in the June quarter, a time when expectations were at a cyclical high."
Stephen Koukoulas, Dun & Bradstreet Economic Adviser

Slower growth in activity for the December quarter

Dun & Bradstreet’s Business Expectations Index stands at 16.8 points for Q4 2017, on par with Q3 and down marginally from Q4 2016. The survey results showed declining expectations for sales, employment and selling prices for Q4 compared with Q3.

Business Expectations Index

Despite the predicted decline in sales and selling prices, profit expectations ticked upward for Q4 compared to Q3. Some 34.0 percent of businesses expect higher profits in Q4 2017 compared to Q4 2016, with just 16.7 percent expecting lower profits. Meanwhile, 19.1 percent of companies plan to increase capital spending in Q4 2017 compared to Q4 2016, while 10.3 percent expect to invest less.

Expectations and Actuals: Profits and Capital Investment

"There has been a moderate decline in expectations for sales, employment and selling price. While the declines have been moderate, the change in trend suggests a mix of slower growth in activity and employment growth and ongoing low inflation right through to the end of 2017.

There is some positive news with moderate gains in expectations for profits and capital investment. The missing ingredient in the economy in recent years has been weakness in capital expenditure, especially in the non-mining parts of the economy. The RBA has recently noted a positive tone in business CapEx sentiment and it will no doubt be pleased to see a further positive result in the Business Expectations Survey."
Stephen Koukoulas, Dun & Bradstreet Economic Adviser

Divergent growth paths across industry sectors

The Retail sector continues to flounder, with the second-lowest Business Expectations Index result and the lowest Business Actuals Index result by a significant margin. The Retailers' Business Actuals Index score was at a three-year low for the June quarter of 2017, dragged down by multiyear lows across actual sales, employment and profit.

The Finance, Insurance & Real Estate industry was the strongest performer, with the highest Business Expectations Index for Q4 2017 as well as the highest Business Actuals Index for Q2 2017. This sector has had the highest Business Actuals Index score for eight consecutive quarters.

Sector spotlight: highs and lows

"Business expectations by industry are showing a significant divergence. The two weakest sectors, which are continuing to weaken, are Retail and Construction. Over the past 18 months, retailers have been the weakest or second weakest sector. The decline in construction expectations is somewhat surprising given the resilience in dwelling construction and the slightly more moderate trend in non-residential activity.

The strength in business expectations in the Finance, Insurance and Real Estate sector has benefited from the housing boom of the last few years. This is not only in terms of generalprice increases, but also investor activity, new construction and the relatively high turnover rate in the sector."
Stephen Koukoulas, Dun & Bradstreet Economic Adviser

Marked differences in outlook for each state

The Australian Capital Territory has both the highest Business Expectations Index score and the highest Business Actuals Index score, leading by a strong margin. New South Wales has the second-highest expectations for Q4 while Tasmania had the second-strongest actual performance for Q2. Across all regions, ACT is the leader for all components of the survey (expected and actual).

By comparison, the Northern Territory had the lowest Business Expectations Index score for Q4, while South Australia had the lowest Actuals score for Q2.

Expectations vs Actuals: by state

Evidently, challenging business conditions are weighing on South Australian businesses: the Festival State had the lowest reported optimism of all state and territories.

When asked whether they were more or less optimistic about business growth in 2017 compared to 2016, South Australian companies had the lowest across the country. By comparison, New South Wales had the highest net score, with 75.2 percent of companies feeling more optimistic about growth 2017 than 2016.

Are you generally more or less optimistic about growing your business in 2017 compared to 2016?

"Businesses were most upbeat in the ACT where expectations for the December quarter and the actual performance for the June quarter were both the strongest. The ACT has the lowest unemployment rate and highest level of wages in Australia. The other stand-out was Tasmania: stronger overall economic activity, a boom in housing and a falling unemployment rate are all likely to have driven this positive result."
Stephen Koukoulas, Dun & Bradstreet Economic Adviser

South Australian companies had the lowest level of optimism across the country, with 46.3 percent feeling more optimistic about business growth in 2017 compared to 2016, while 41.5 percent feel less optimistic. New South Wales businesses were the most optimistic, with 75.3 percent of companies feeling more optimistic about growth in 2017 than 2016.

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