Business reports strong expectations

Employment expectations are back in positive territory, capital investment expectations have risen to the highest level in the past seven years, and profit expectations have risen again, according to the latest Dun & Bradstreet Business Expectations Survey for the June quarter.

The full statement is below:

Capacity issues and fierce competition for skilled labour looks set to return as a feature of the
Australian economy as firms report their strongest expectations in many years for inventory and employment growth.

These findings from the latest Dun & Bradstreet Business Expectations Survey for the June quarter follow what have already been record low unemployment levels amongst the developed world during the Global Financial Crisis.

In further positive news Australian executives also have increased profit level expectations with the profit index reaching its highest point in five years. Employment expectations for June quarter 2010 are five percentage points higher than the March quarter of 2010 reaching an index of 5. Eleven percent of firms are planning to increase staff levels and six percent to reduce employee numbers.

These figures are now a 31 percent improvement on the June quarter 2009 expected employment index figure of minus twenty six percentage points. This was the lowest record employment in the history of the survey.

Despite reports of recent falls in job advertisement numbers, all sectors now have positive expectations for growth in employment numbers. Durables manufacturers have the highest index of a net seven with 14 percent expecting to increase employment and seven percent expecting to decrease staff numbers.

In further good news Australian firms' outlook for profits expectations has also continued to improve - the index of 15 for June quarter 2010 is the highest level in five years. Twenty seven percent of Australian executives surveyed now anticipate profits will increase in the June quarter and only 12 percent expect a fall. Executives from the retail sector have the highest profits expectations with 30 percent expecting an increase and just 10 percent a decrease.

The expected sales index however fell three points to 25 but retained the strong positive level of the two previous quarters. The sales index is also still up 73 points on the trough of the June quarter 2009. Thirty nine percent of firms expect an increase in sales and 14 percent a decrease in sales in June quarter 2010.

The decline of three points in the overall index was due to a reduction of 18 points from the retail sector's expectations index of 35 for the March quarter. March was however the highest retail sales expectations index in more than six years. Like sales expectations, capital investment expectations moved only slightly from the previous quarter increasing three percentage points.

However expectations for growth in capital investment are equal to their highest level in seven years reaching an index of ten, twenty percentage points higher than the June quarter of 2009. Twelve percent of firms surveyed expect to increase capital investment, while just two percent are planning to decrease spending in this area. Wholesalers have experienced the most significant increase in expectations (up 23 percentage points since the June quarter 2009) as the capital investment index returned to positive territory.

Actual capital investment in December quarter 2009 is the highest in more than six years and has now had three positive quarters after five negative quarters from March 2008 to March
2009. Fifteen percent of firms had more capital investment and four percent less capital investment than in the December quarter of 2008.

Inventory expectations for the latest three quarters are at their highest level in more than four years. Fifteen percent of executives expect to increase inventories in the June 2010 quarter, while 12 percent plan to reduce stock levels. The expectations of wholesale executives have reached the highest level in more than four years, with a net eight percent of firms expecting to increase stock levels in the June quarter.

The preliminary index of the net proportion of firms with actual increases in inventory levels is three for the December 2009 quarter, up four points on the previous quarter. The increased contribution of stocks is seen as an important indicator of business confidence and represents a significant improvement since the low actual index of -11 for March quarter 2009.

The retail sector has seen the greatest improvement returning to positive territory with an index of 13, up 25 points from a low of -12 in March quarter 2009.
Expectations for selling prices have risen by eight percentage points to an index of 17, the first rise in five quarters. One in five (22 percent) firms expects to raise prices in the June quarter, while five percent expect to lower prices. However, durables manufacturers have further reduced their selling prices expectations by a further 11 points to an index of 1 for June quarter 2010, two points lower than their previous low index of 3 for June quarter 1992.

According to Dun & Bradstreet's CEO Christine Christian, the expectation of increased intention
to employ staff is a sign that Australian firms believe that 2010 will be better than a difficult
2009.

"With unemployment being seen as a major concern throughout 2009 the improved employment expectations across all sectors is welcome news for both those who are in the labour market and for business confidence on the whole," said Ms Christian.

"The rise in confidence of 31 percentage points since the lows of the June quarter of 2009 is one of the biggest improvements in the history of the survey. If the profit and employment expectations of Australian firms are met this could go a long way to restoring Australia to pre Global Financial Crisis levels of business activity. The next challenge will be how Australian firms go about meeting these expectations between now and the June quarter."

The detrimental impact of credit market conditions on Australian businesses is continuing.
Thirty five percent of firms indicated that credit market conditions are detrimentally impacting operations (an increase of four percent in a month) while seventeen percent report a positive impact (up 10 percent since last month).

Despite a small decrease of five percent in the last month, rising business-to-business payment days are still having a negative impact on one in three (35 percent) firms. Dun & Bradstreet's
Trade Payment Analysis of the more than nine million current accounts receivable records contained on the D&B database - reveal that a deterioration in payment terms (2.1 days) in the December 2009 quarter has taken terms up to 53.9 days. This has largely reversed the gains made in the September quarter 2009.

Twenty three percent of executives believe fuel prices will be the primary influence on operations in the quarter ahead. This is a rise of 10 percent since last month. However, 37 percent of firms surveyed rank interest rates as the major influence on their business and 34 percent consider wages growth to be their primary concern.

With the rising improvement in profits expectations, 36 percent of executives plan to reduce their current business debt levels in the next three months, seven percent reduce significantly and 29 per cent moderately. Only five percent expect to increase their business debt and 56 per cent plan to maintain current debt levels.

According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the latest D&B survey indicates a continued strong business performance in 2010. "Expectations for growth in profits and staff numbers have picked up and are now equal to the highest levels in five years. Businesses are backing up these expectations with intentions to make relatively strong increases in capital investment and inventories," said Dr Ironmonger.

"Last week's Reserve Bank's decision to leave official rates unchanged indicates some concern for the difficult credit conditions that remain for many small businesses. However the decision indicates the Bank is comfortable with the current outlook for inflation.

"Although the latest national accounts do not yet go beyond the September quarter 2009, later data suggest a continuation of growth in the December quarter. In the three months to December employment grew at an annual rate of 3.6 percent. Consequently 2009 is highly likely to show four quarters of positive economic growth in Australia - a strong base for more growth in 2010," Dr Ironmonger said.

The D&B index for expected sales is down three points to 25, with 39 percent of executives expecting an increase in sales and 14 percent expecting a decrease. The profits index is up five points to 15, with 27 percent of executives expecting profits to rise and 12 percent expecting a fall.

Employment expectations are up five points an index of 5, with 11 percent of executives expecting an increase in staff and 6 percent expecting a reduction.

Capital investment expectations are up three points to an index of 10, with 12 percent of executives expecting an increase and 2 percent expecting to cut spending. Inventories expectations are down two points to an index of 3. The selling prices index is up 8 points to an index of 17, with 22 percent of firms expecting to raise prices and 5 percent expecting to decrease them.