Business expectations continued to decline with weak consumer spending and rising fuel prices, according to the April results of the latest Dun & Bradstreet business expectations survey.

The survey, which examines expectations for the June quarter, reveals significant declines in the outlook across most indices after record highs just six months ago.

Sales expectations are now at their lowest level in almost two years, dropping 17 points to a net index of 14. Expectations are particularly weak for the retail sector, which has struggled to stimulate consumer interest even with heavy discounting.

Sales expectations for retailers sit at a net index of 6, which is 8 points below the overall index of 14. Only non-durable manufacturers have higher sales expectations for the June quarter.

The decline in sales expectations is flowing through to the outlook for profits with the overall profits index dropping 22 points to a net index of 8. However, while the drop is significant profit expectations still remain above the 10 year average of 6.

Dun & Bradstreet CEO Christine Christian said this was always likely to occur as the government stimulus package was wound down and households reassessed their debt levels and sought to deleverage.

“The Government stimulus package and the quick upturn in demand for commodities from developing countries following the global crisis allowed Australian firms to enjoy rather robust conditions throughout 2010,” she said.

“However, as the stimulus package has been unwound and interest rates have started to rise households have pulled back on their spending and began a process of deleveraging. This has resulted in executives adjusting their expectations bringing them back into line with the long run average.”

Further, capital investment and inventories are experiencing declines as a result of the more subdued sales and profits outlook. The capital expectations index has declined 8 points to a net index of 5, which is well down on the previous four quarters and just below the 10 year average.

Inventory expectations are down 9 points as more executives plan to de-stock in response to the sales outlook. The process of de-stocking has a flow on effect throughout the supply chain for most firms. The reduction in the inventories expectations index comes on the back of the first quarter of negative actual inventories growth in more than a year.

Despite these results, Duncan Ironmonger, Dun & Bradstreet’s economic consultant, remains optimistic saying the Australian economy will soon recover from the effects of the Queensland floods. However, the situation in Japan and the Arab world may continue to be a dampener on business expectations.

“The latest D&B survey reveals that the significant reduction in second quarter business expectations for growth in sales and profits has led to a large reduction in capital expenditure and inventories expectations to below their 10-year averages. If this continues through the following half of 2011 business will not be prepared for any resumption of household spending,” he said.

“The latest Bureau of Statistics data for February give a positive indication for somewhat better than expected growth in retail sales. Households may be more relaxed about their level of debt and preparing for some increase in spending.”