Businesses are feeling increasingly pessimistic heading into the September quarter according to new research.
The latest Dun & Bradstreet Business Expectations Survey shows expectations fell across all key sub indexes, with the exception of capital investment.
Profit expectations recorded the biggest drop – down from 10.2 points in the previous quarter to 3.6 points. Sales expectations also dived, from 23.6 points to 17.2 points.
Employment intentions posted a slight decrease (from 8.3 points to 7.5 points), with selling prices down from 13.7 points to 7.3 points.
However, businesses are feeling confident about capital investment plans, with this index rising from 8.7 points to 10.3 points.
The Business Expectations Index – which is the average of the Business Expectations Survey measures of sales, profits, employment and capital investment – fell from 12.7 points for the June 2016 quarter to 9.6 points for the September quarter.
Election uncertainty is having a negative impact on businesses according to Stephen Koukoulas, economic adviser to Dun & Bradstreet.
“Most disconcerting was a slump in both actual and expected profits, which have dipped to multi-year lows,” he says.
“Business optimism has clearly soured in the past few months to the point where sales, expected selling prices and employment have also slowed markedly. It is not clear what is driving this less optimistic tone, but a lack of economic policy resolve from the government, and the inevitable uncertainty that will accompany what will be a very long election campaign, are no doubt weighing on confidence.”
The reporting of ‘actual’ activity also declined, with the Actuals index plummeting to 5 points, compared to 12.7 points last quarter. Dun & Bradstreet highlights this brings an end to three consecutive quarters of growth.
“Actual Sales and Actual Employment indices were particularly hard-hit, with the former falling from 22.4 points to 12.5, while the latter dropped from 8.5 points to 1.1 points,” the report noted.
“The Actual Profits index collapsed from 8.0 points to -3.0 points.”
The Survey also highlights key issues expected to influence operations in the September quarter – consumer confidence topped the list (43.9%), followed by cash flow (13.5%) and the level of the Australian dollar (10.6%).
More than half of businesses (56.5%) are more optimistic about growth in the next 12 months compared to 2015, while 34.8% are less optimistic and 8.7% are undecided.
The top two barriers to growth included weak demand for products and services (24.6%) and cash flow (13.5%).
As for funding growth activities, the overwhelming majority do not anticipate seeking finance or new credit in the quarter ahead (82.2%), while 11.8% intend to and 6% are undecided.
Looking ahead, Koukoulas says the big test for the economy will be next month with the release of the official private capital expenditure and GDP data for the March quarter.
“If these turn out to be weaker than expected, the less than favourable business expectations in the Dun & Bradstreet survey could quickly work to undermine confidence as the election draws near,” he concludes.