Confidence has continued its upward trajectory in the corporate sector, although businesses remain cautiously optimistic as concerns over weak demand and low consumer confidence weigh on their outlook for the final quarter of 2015.
The record Sales Expectations result seen in last month’s preliminary survey has been supported by Dun & Bradstreet’s latest Business Expectations Survey, which reveals solid increases in Profit and Employment Expectations, which rose from 15.9 and 11.7 points in Q3 to 23.5 and 15.5 points respectively.
Capital investment remained in the doldrums, reflecting a disconnect between growing business sentiment and a reluctance to invest or take on debt. The positive outlook wasn’t unfounded though, with the Business Actuals Index for the June quarter also rising sharply to 10.4 points, significantly higher than the 6.6 points of the preceding quarter and the 6.7 points recorded at the same time last year.
Dun & Bradstreet’s Business Expectations Index, the average of the survey’s measures of sales, profits, employment and investment, has increased from its Q3 2015 low of 17.2 points, to 23.2 points for the December quarter. At this level the index is still just shy of the 23.9 point peak for 2015 recorded in Q1, although it remains higher than the 20.3 points for the same period last year.
Expectations for the price of goods sold eased marginally lower, with 24.1% of businesses saying they expected to reduce prices in the coming quarter, down from 24.4% in the preceding quarter but higher than the 23.7% recorded this time last year.
According to Adam Siddique, Head of Corporate Affairs at Dun & Bradstreet, the survey results consolidate the initial Q4 findings of a shift in sentiment.
“The latest results confirm the preliminary Q4 findings, which revealed a distinct shift towards a more positive economic outlook in the short-term. Sales Expectations continue to drive the overall sentiment, with profit and employment tracking a similar path, albeit at a slower pace.
“Consumer confidence and weak demand for products and services remain the principal concerns. This uncertainty could explain business owners maintaining their ‘wait and see’ approach when it comes to seeking credit for expansion and planning capital investment,” Mr Siddique added.
“Nonetheless, we’re seeing robust levels of optimism across all sectors in the Australian business community. There is no avoiding the interconnected nature of global markets, however, and the Australian economy will likely be tested in the coming months by the upheaval affecting global stock markets.”
Businesses are looking for clear signs of an increase in consumer demand as the final quarter approaches, with the Australian dollar, interest rates and skills shortages all serving as peripheral factors.
The Business Expectations Survey revealed 32.2% of Wholesalers saw Consumer confidence and the Australian dollaras equally important factors likely to influence operations in the quarter ahead; 52% of Wholesalers preferred a stronger Australian dollar, while 15.3% preferred a weaker dollar. Transport, Communications and Utilities companies rated Cashflow as the number one issue likely to influence operations during the same period.
Unsurprisingly, Retail businesses had the brightest Sales outlook for the coming quarter as we approach their busiest time of year, with Sales Expectations increasing from 30.4 points in Q3 to 53.2 points; 60.2% of Retail businesses said they expected sales to increase in Q4.
Employment Expectations provided a mixed bag, with the Finance, Insurance and Real Estate sector sinking from 20.1 points in Q3 to 6.6 points for Q4, and considerably down on the 18.2 points recorded for the same period in 2014. By contrast, Employment Expectations for the Services industry more than tripled from 9.5 points in Q3 to 32.4 points for the current period, up from 28.6 points this time last year.
Despite its broadly flat trend, Capital Investment Expectations for the Manufacturing, Wholesale and Retail sectors all recorded big swings, moving from 3.6, 14.0 and 10.6 points in Q3, to 10.5, 20.2 and 20.0 points, respectively. Conversely, Finance, Insurance and Real Estate fell sharply, from 27.1 points in Q3 to 9.0 points.
According to Stephen Koukoulas, Economics Advisor to Dun & Bradstreet, “Despite the market turmoil in recent months, there are encouraging signs for the economy from what is an increasingly broad-based lift in business expectations. In particular, the level of expected sales is exceptionally robust and points to the economy lifting a notch over the remainder of 2015.
“Encouragingly, the business sector’s expectations for profits and future levels of employment have also continued to track higher, even though they remain marginally below the peak levels seen early in the year. It appears that the very low level of interest rates, together with the stimulatory effects of the depreciation of the Australian dollar, is behind the more favourable outlook for the economy.”
Mr Koukoulas added, “The soft spot for business expectations remains capital expenditure, which is yet to sustain any upside momentum and this could well be a factor holding back a more meaningful pickup in economic activity”.