Australian business executives have given a mixed outlook on the economy as employment growth and capital investment confidence deteriorates, but sales and profit expectations improve.
These are findings from the latest Dun & Bradstreet (D&B) Business Expectations Survey, which shows that business executives are seeing small signs of economic revival despite remaining in negative territory. The index for expected sales is still negative but has lifted 10 points to -38; similarly the index for expected profits has lifted 11 points to -46.
However, expectations for employment and capital investment are still on a downward trend, with a net 28 per cent of firms expecting to cut back on staff and a net 14 per cent anticipating a need to decrease capital investment. Likewise, expectations for inventory growth are at the lowest level since the 1991 recession, signalling that executives are not yet planning to increase existing stock levels.
Selling price expectations rose by 30 per cent in the nine months from June quarter 2008 to hit their highest level ever recorded for March quarter 2009. Expectations have now dropped back by 17 per cent for the September quarter. However, two in three (66 per cent) firms expect that they will raise prices.
Changing credit market conditions and the Aussie dollar continue to impact firms, with almost six in 10 (57 per cent) businesses negatively impacted by the credit market. With a rise in the AUD in April, 60 per cent of firms report a negative impact of movements in the dollar, down from 67 per cent in March. Wholesale businesses still report the greatest impact from currency fluctuations, with 71 per cent now indicating a negative impact, down from 81 per cent in March.
Downward movements in petrol prices have shown through with a decline since the September quarter 2008 of 91 per cent in the number of executives negatively affected by fuel costs. Two per cent of firms now report a negative impact while 45 per cent report a positive effect.
Dun & Bradstreet CEO Christine Christian believes that the recent data indicate that while executives believe measures such as the government stimulus packages will have a positive impact, the short term outlook is still negative in key areas such as employment.
“The declining outlook in employment growth continues to be a concern. The fact that the employment indicator has dropped to its lowest level recorded by the survey is a clear sign that this fear is shared by Australian executives,” said Christian.
“Sales and profit expectations have improved but are still in negative territory. This indicates that expectations in these areas may have turned the corner. Ultimately we need to see consistent improvement in key areas like sales and profit expectations before it is evident that executives are feeling positive about Australia’s business prospects.”
The further small reduction in the official cash rate in April has impacted executives’ views on the issues that will influence their operations most in the quarter ahead. Forty five per cent of executives now rank interest rates as the primary influence on their business in the quarter ahead, down from 48 per cent in the last survey.
Lower fuel prices are also an issue high on the agenda for Australian firms. Sixteen per cent of executives anticipate that fuel prices will have the most significant influence on their operations in the September quarter, down four per cent in one month. Meanwhile 18 per cent of firms rank wages growth as their primary concern, an increase of four per cent since February.
According to Dr Duncan Ironmonger, Dun & Bradstreet’s economic consultant, this week’s Federal Budget will be closely examined to see whether it provides sufficient stimulus to ensure a sustainable recovery to the Australian economy.
“The Reserve Bank did not alter the cash rate last week leaving room for further cuts later in the year if needed. The latest D&B survey shows that although business expectations are still negative, there are tentative signs that the worst could be over,” said Ironmonger.