Dun & Bradstreet’s latest Business Expectations Survey indicates a fairly subdued outlook for the first quarter of 2016, as results continue to fall short of expectations. As the new year approaches, businesses are reporting lowered expectations for activity across Sales, Profits, Employees and Capital Investment.
For the September quarter, Actual Indices (percentage of businesses reporting an actual increase in activity minus percentage of businesses reporting an actual decrease) fell short of Expectation Indices across all components except Selling Prices, which exceeded expectations by a marginal 0.33 points.
Meanwhile, the actual increase in both Selling Prices and Employees exceeded expectations for the September quarter: 25.2 per cent of businesses reported an increase in Selling Prices for Q3, compared to the 24.2 per cent that had expected an increase, while 23.0 per cent of businesses reported an increase in Employees for the quarter, compared to the 21.1 per cent that had expected an increase.
Interestingly, that the actual decrease in Employees for the September quarter outstripped the expected decrease by 7.9 percentage points – the most substantial discrepancy between expected and actual increase/decrease components seen for the quarter.
The muted outlook comes despite an improvement in Actual Indices for Profit, Capital Investment and Selling Prices in the September quarter compared to the June quarter. Only the Actual Sales Index decreased; the Actual Employees Index remained unchanged since the previous quarter.
Dun & Bradstreet’s Business Expectations Index, the average of the survey’s measures of Sales, Profits, Employees and Capital Investment, has fallen to 18.7 points, down 3.1 points from 21.8 points in Q4 of 2015. The Q1 2016 result is significantly lower compared to the previous corresponding period’s result of 23.9 points, which was the highest Business Expectations Index result since the December quarter of 2003.
The Business Expectations Index is an aggregate of the survey’s measures of sales, profits employment and investment expectations.
Out of the seven industry sectors surveyed, five showed a decrease in their individual Expectations Index compared to the previous quarter. The exceptions were Transport, Communication & Utilities and Services. The former showed a 5.3-point increase from 15.9 points to 21.2 points, while the latter showed a more modest 1.4-point increase from 26.5 points to 27.9 points – the highest score across all sectors.
Transport, Communication & Utilities was also the only industry in which the Actuals Index for the third quarter of 2015 eclipsed the Expectations Index. Its individual Actuals score for the quarter was 14.7 points: 1.5 points higher than its Expectations score of 15.9 points.
While the results of the survey indicate uncertainty heading into the new year, all indices except Selling Prices are well above their respective ten-year averages. At 18.7 points, the Business Expectations Index is itself 11.9 points above its ten-year average of 6.8 points.
Sales expectations continued to track lower across all industries except Transport, Communication & Utilities. Within this sector, 47.5 per cent of businesses expect sales to increase in the March quarter of 2016 compared to the March period of 2015, while 17 per cent expect a decrease in sales. Expectation indices for employment, investment and selling prices all increased in this sector, with only the Profit Expectations Index dropping from 25.2 point to 18.5 points.
According to Adam Siddique, head of group development at Dun & Bradstreet, business confidence remains historically strong, although the cooling in housing market activity may present challenges in the year ahead.
“There can be no doubt the Sydney and Melbourne housing markets are now slowing down, which is to be expected after a period of spectacular growth. In light of the Treasury’s recent cut to its growth forecast, from 3% to 2.75%, it will be interesting to see how business confidence fares if this key driver of economic activity begins to fade,” Mr Siddique said.
“Housing, along with construction and other related activities, has underpinned growth following the end of the mining boom. The lack of business investment in non-mining areas of the economy suggests there will be no obvious candidates to pick up the slack should this turn into a sustained easing in the housing market.
The recent trend of Actual and Expected results gradually aligning in the headline and component indices has continued, and this is something we’ll track with interest as we head into 2016,” Mr Siddique added.
September’s federal leadership spill continues to have an underwhelming effect on business sentiment: the aggregated 55.6 per cent of survey respondents expect the change in Prime Minister and Treasurer to have no impact on their business. 33.0 per cent believe it will have a positive effect, while just 4.3 per cent expect a negative effect. The remaining 7.2 per cent are unsure.
The highest net optimism scores (percentage of businesses expecting a positive impact minus percentage of business expecting a negative impact) is seen in the Wholesale industry (37.6 points), while the lowest is seen in the Transport, Communication and Utilities industry (22.5 points).
According to Stephen Koukoulas, economics advisor to Dun & Bradstreet: “Whilst off the recent highs, business expectations remain firm, tracking solidly above the long-run averages. The governor of the Reserve Bank of Australia, commenting on current economic conditions, noted this last week: ‘Business surveys indicate that firms report conditions to be, if anything, above their long-term average in some key sectors’.
“The disappointing aspect for the economy is that ‘actual’ conditions for sales, profits, employment and capital expenditure remain below these positive expectations, a point borne out in recent economic growth figures,” Mr Koukoulas noted.
Mr Koukoulas added: “While nearly two-thirds of businesses surveyed said that the recent political changes in prime minister and treasurer would have no impact on their businesses, one-third were upbeat, saying the change would have a positive impact. Only 1 in 25 firms said the change would be negative.”
