Despite the pockets of optimism driven by low interest rates and the slow consumer confident, a tough trading and tight cash flow are restricting business spending.
The latest Dun & Bradstreet National Business Expectations Survey shows the capital investment index for Q3 has fallen further, from five to negative three, its lowest point in more than three years. In addition, actual investment for the March quarter dropped to negative six, its lowest level since early 2009 when businesses were taking cover from the global financial crisis.
The monthly survey of Australian businesses, which includes retailers, suggests there will be no immediate change to the prevailing policy of financial conservatism from businesses, with employment plans also shelved for the months ahead.
With spending capacity restricted, businesses are showing little intention to start hiring again. The employment expectations index has tipped into negative territory, at -0.5 for the quarter ahead, continuing a slow decline that began in early 2012.
“The steep drop in the capital investment index during the past two quarters is concerning and likely to have an impact on productivity and growth,” said Danielle Woods, Dun & Bradstreet’s Director of Corporate Affairs.
“This movement takes expectations back to levels seen during the GFC, and the corresponding movement in employment intentions shows that businesses are continuing to bunker down and limit expenses. This will naturally have a knock-on effect for spending activity in the rest of the economy.”
Although the D&B’s findings on Q3 expectations do reveal some signs of optimism as a result of businesses keeping an eye on their expenses.
After a disappointing end to 2012, retailers are also reporting higher sales and profits expectations for Q3 this year. These findings follow from ABS statistics showing improving levels of retail trade during the first two months of 2013. Selling price expectations across industries appears to have stabilised, with businesses readjusting to a persistently high Australian dollar. The index has remained flat for the third consecutive quarter, although it has settled at a historically low index of three, 25 points below its 10-year average.
“This latest research confirms a marked cooling in economic activity with a further fall in expected capital expenditure. At the same time, the business sector has scaled back its plans for employment which suggests there are more upside risks to the unemployment rate in the months ahead, ” said Stephen Koukoulas, economics advisor to Dun & Bradstreet.