The January 2014 Australian Chamber of Commerce and Industry (ACCI) Survey of Investor Confidence reveals that despite some positive trends, such as sales and profitability continuing to rise off of a low base through the December quarter, sustained improvements are needed. Unless conditions improve further from their current levels, business capacity will remain underutilised and investment and hiring intentions will remain lacklustre.
The index of 'Expected Number of Full Time Employees' remained in negative territory, but edged up marginally to 47.4 points. This figure indicates firms anticipate reducing levels of full-time employment and suggests that overall unemployment will continue to rise. Given businesses' own muted trading conditions and indications as to hiring intentions, it is no surprise that business reports in this survey that they expect the national unemployment rate will continue to rise over the next twelve months. The 'Expected Unemployment Rate' index itself has declined over the recent past but the reading remains high suggesting that business expects the unemployment rate to continue to rise, albeit at a slower pace, over the next twelve months.
The index of 'Own Sales – Current', which measures businesses' sales in their own firms over the quarter, is approaching positive territory for the first time since January 2011. However, the index is still just below the 50 mark that separates contraction from expansion indicating business sales performance remains weak. Likewise, 'Own Profitability – Current' remains in negative territory, and has done so since the global financial crisis. While the index has shown signs of improvement, increasing by 2.4 points over the last twelve months, significant further improvement will be needed for the index to get back to even a neutral position.
Investment remains mired in contraction territory with the index of 'Expected Level of Investment', demonstrating that investment growth is not widely planned amongst businesses. This is unsurprising given the assessment that the current climate for investment is poor, and both actual sales and profits have disappointed compared to expectations six months earlier.
Burchell Wilson, chief economist (acting) and director of economics and industry policy (acting) at ACCI commented:
"The survey shows businesses are still struggling and have limited appetite to invest or employ. The most disappointing element of the survey was the pronounced slump in expectations for firm's own performance seen in the December quarter. The size of dip in the seasonally adjusted expectations indicators suggests that firms are losing hope and may signal a turning point that could see firm level expectations sink into negative territory in coming quarters.
"There is little evidence in this survey that provides comfort for the view that the anticipated recovery in non-mining investment will be sufficient to offset the drag on growth from the resources sector in the year ahead. Businesses are judging that it is not a good time to expand capacity and expect there to be further pressure to reduce the size of their workforces. Combined with the disappointing labour market figures for December, the case for a further interest rate cut is growing. The inflation report for the December quarter due on Wednesday is expected to show price pressures are well contained and is unlikely to present an obstacle to reducing the cash rate further."
Editor's comment
With the number of unemployed continuing to grow, as well as the numbers of unreported under-employed persons, there is a growing need to focus on (re)training and boosting TAFE, other vocational education and training, and apprenticeship programs.
There is also a need to pull back on skilled migration as the pool of locally available unemployed/underemployed persons with good employment potential far exceeds the number of skilled workers required.
At a time when the government is seeking to reduce the welfare budget, training the unemployed/underemployed off the welfare queue and into skilled jobs is the way forward.
