WA business confidence high in face of cost pressures

Business confidence continues to ride high in Western Australia, with a big number of firms planning to increase capital investment and hire more people during 2006.

The latest CCI-BankWest Survey of Business Expectations - the longest running and most comprehensive business survey conducted in the state - has found 87 per cent of businesses believe the state economy will remain strong or strengthen over the next 12 months.

Nearly 400 businesses of all sizes from all industry sectors participated in the CCI-BankWest March quarter survey.

Respondents indicated however that the strong prevailing economic environment was causing increased cost pressures, stemming from tight labour market conditions and high supply prices. Nearly half indicated their labour and input costs had risen during the quarter.

CCI economist Noel Richards said businesses did not expect cost pressures to ease in the short term. A large proportion thought costs might rise even further. Capacity constraints were also beginning to emerge.

Capacity utilisation remained high at 82 per cent this quarter following a record high of 83 per cent in December. With businesses reaching the limits of their production capacity, around 40 per cent of respondents signalled their intention to expand their capital base over the next year. As a result, the index of anticipated capital spending reached its highest level this quarter since this particular measure began in late 1997.

While capital expansion is on the cards for many businesses, finding suitable workers is still proving tough. Nearly two thirds of respondents to the March survey said they considered labour in WA to be scarce.

Mr Richards said labour shortages were likely to continue in the medium term with many businesses still recruiting actively this quarter. More than a third of firms intended to hire more staff in the coming quarter.

The feature question in the March survey looked more closely at the issue of labour demand, and the measures being adopted by businesses to address shortages.

Overall, it found that labour scarcity is having a negative effect on as many as 61 per cent of businesses in WA. The effect of shortages was more pronounced in those sectors experiencing high growth in demand, particularly mining and construction.

In terms of specific skills, businesses are most in need of tradespersons, with 38 per cent saying they were in need of such staff. This was up from 22 per cent in June 2004 when a similar feature question was asked of businesses as part of this survey.

Next to tradespersons, professionals were needed most (26 per cent) and labourers and junior workers (22 per cent). Again, the need for these workers has risen since June 2004 when only 12 per cent of businesses indicated a need for professionals.

Mr Richards said that while the availability of certain skills and occupations in WA appeared to have worsened, businesses had resorted to using new methods to attract labour.

For example, some 46 per cent of respondents to the March survey had tried offering better pay and conditions to secure labour, up from only 28 per cent in the June 2004 survey. The proportion of firms seeking labour overseas has also risen from 10 per cent in June 2004 to 18 per cent this quarter.

Mr Richards said that the use of apprenticeships and traineeships had proved the most successful method of overcoming labour shortages (effective for 67 per cent of respondents), although it had been utilised by a relatively small proportion of businesses.