Manufacturers set for growth

Confidence in the manufacturing sector is at its highest level since June 2003 with the sector investing for growth on the back of healthy profits and sales, according to the illion (formerly Dun and Bradstreet) Business Expectations Survey.
The latest analysis reveals business confidence across all sectors rose 13.7 percent compared to the prior corresponding period, primarily driven by expectations for profits, sales and employment. The Business Expectations index is now at its highest level since late 2015.

illion Economic adviser Stephen Koukoulas said the broad nature of the result bodes well for the economy in the near term. “Manufacturing firms that were able to withstand the global financial crisis and the Australian dollar above parity are now in a healthy financial position, buoyed by a stronger global economy and a lower Australian dollar.”
illion CEO Simon Bligh said capital investment is crucial for sustained economic growth. “Capital investment planning is showing signs of growth, which is crucial for sustained momentum.”
“The Manufacturing and Construction sectors appear to be in particularly good spirits as we start the year, which is another positive sign of the underlying strength of the economy.”
The illion Business Expectations Survey full report for Q1 2018 is available here.
 

Retailers face tough Christmas

In Dun & Bradstreet’s September Business Expectations Survey, companies are predicting weaker sales, lower employment and a decline in selling prices; however, profits and capital investment are tipped to rise in the last months of the year.
The upcoming Christmas period has done little to lift spirits in the troubled Retail sector, with expectations uncharacteristically low for the December quarter.
“As 2017 draws to a close, business expectations remain broadly steady, which points to ongoing moderate economic growth. Actual business activity ticked higher in the June quarter, but it remains in a range that points to the economy neither being strong nor weak, but rather something in-between,” said Dun & Bradstreet economic adviser Stephen Koukoulas.
Key findings:

  • Overall business expectations down.
  • Profits and capital investment record climbs in both expectations and actuals.
  • Sales, employment and selling prices tipped to fall in Q4.
  • Retail sector remains weak.

Capital investment expectations on the rise
Dun & Bradstreet’s Business Expectations Index stands at 16.4 points for the December quarter of 2017, down marginally from the 16.7 points recorded in the previous quarter, and down from 17.0 points in the previous corresponding period.
Expectations for capital investment for Q4 2017 have increased slightly compared to both previous and corresponding quarters. Actual capital investment activity increased sharply in Q2 2017 compared to Q1 2017. For the March quarter 2017, 16.3 per cent of businesses increased their capital expenditure, while 8.2 per cent decreased capital expenditure compared to the previous corresponding period.
“One of the concerns for the economy in recent years has been the weakness in capital expenditure. Whilst expectations have been generally positive over that time, the momentum has not translated to a pick-up in activity. The current reading of expected capital expenditure is marginally above the long term average which, if realised in the second half of 2017, will be positive for actual investment,” said Mr Koukoulas.
Retailers, manufacturers downbeat
Sentiments within the retail sector remain subdued. Whilst expectations have ticked upward for the fourth quarter compared to the third quarter, the current result is substantially lower than prior corresponding quarters.

Retailers are the least upbeat about business growth across all sectors: 55.4 per cent of retail firms said they were more optimistic about business growth in the year ahead compared to the previous year, while 35.7 per cent are less optimistic. Wholesalers are the most upbeat, with 69.8 per cent feeling more optimistic compared to 20.8 per cent feeling less optimistic.
Meanwhile, manufacturing firms saw a notable drop-off in optimism in the September survey, with Q4 sales, profits and capital investment expectations falling to multi-year lows.
“Business expectations in manufacturing have taken a sharp turn lower, which appears to be linked to the recent strength in the Australian dollar, which is undermining the sector’s international competitiveness. Indeed, manufacturing is poised for a period of severe weakness with expected profits, sales and capital expenditure at the lowest level in at least four years,” said Mr Koukoulas.
During the third quarter, manufacturers were the most likely of all sectors to say their business would benefit if the Australian dollar was lower than the current level: 17.6 per cent of manufacturing businesses would prefer a lower dollar, compared to an average of 9.7 per cent across all sectors.
Service firms lead the way in employment
Actual and expected employment figures have remained largely steady. Some 21.5 per cent of executives expect to employ more staff in the fourth quarter 2017 compared to the fourth quarter 2016, while 8.1 per cent expect to decrease their staff numbers. In Q2, 20.3 per cent of businesses employed more staff than a year earlier, compared to the 12.2 per cent that reduced their employment levels.

Services firms had the highest expectations for employment in the coming quarter, and the highest actual employment results for the June quarter. Retailers, on the flip side, had both the lowest employment expectation score and the lowest employment actual score.
“The recent official data on employment has been particularly strong which is consistent with the previous employment expectations and actual results. The level of employment expectations remains positive into the December quarter although there has been a small decline in the expectations index in recent months. That said, employment growth is likely to remain positive through to the end of the year,” said Mr Koukoulas.
 

Troubled times ahead

Australia’s business executives are anticipating a bleak September quarter as high fuel prices, continued inflationary pressures and slowing consumer spending hurt sales and profit margins.

The latest Dun & Bradstreet (D&B) Business Expectations Survey reveals that businesses are expecting a steep decline in sales, profits, employment growth and capital investment, with all of these indexes now in negative territory.

This comes on the back of an increase in the number of executives reporting negative impacts on their business due to soaring fuel prices (climbing 21% since March to 82%) and more organisations being hit by a slowdown in consumer spending (up 2% in one month to 38%).

Supporting expectations that inflationary pressure will continue throughout the year, the selling prices indicator has risen five per cent to an index of fifty. Despite the increase, the index remains lower than four of the last five quarters, now fifty seven per cent of executives expect to raise selling prices in the September quarter.

Reflecting poor results in the March quarter, expectations for sales growth have dropped 33 points from December quarter highs. Forty per cent of firms saw a decrease in sales in the March quarter and the same percentage of executives anticipate a fall in sales in the coming quarter. Nondurables manufactures have been particularly hard hit, with the actual sales index falling 45 points from the December to the March quarter. Despite being the only industry with a positive actual sales index for the March quarter, durables manufacturers have also reported a negative outlook for September quarter sales.

Profits expectations have also fallen sharply, down 29 points since the December 2007 quarter. This decline in expectations is a reflection of poor March quarter results, particularly for nondurables manufacturers and retailers.

The employment indicator has hit its lowest level in 17 years. Twenty per cent of executives expect to have fewer staff in the quarter ahead than they did a year ago while just 10 per cent expect to increase employee numbers.

A significant weakening in capital investment expectations has resulted in the overall index dropping to minus six however durables manufacturers remain just inside positive territory at an index of two.

According to Christine Christian, Dun & Bradstreet’s CEO, the impacts of a slowing economy combined with high petrol prices are impacting executive expectations for the September quarter.

“Poor results in the March quarter combined with continued pressures from inflation, the credit market, high fuel prices and slowing consumer spending have led the steep decline in executive expectations for the September quarter,” said Ms Christian.

“The business community is now anticipating a rapid slowdown in activity in the coming months.

“Adding to the list of challenges, better than expected GDP results for the March quarter have fuelled speculation regarding the need for a further rate rise. Any further increase in the cost of credit will likely add pressure to a number of businesses, with SMEs likely to feel the greatest burden.”

Up nine per cent since the previous survey, credit market turmoil continues to represent a significant concern. Two thirds (67%) of firms surveyed indicated that a tightening credit market will have a negative impact on operations in the coming quarter. Ten per cent anticipate a very negative impact.

Despite the RBA keeping interest rates on hold for the past three months suggestions that rates may need to rise again to contain inflation are evident in executive concerns, particularly in the retail sector. Almost half of firms surveyed (47%) rank interest rates as the most important influence on operations in the new financial year, this jumps to 57% for retail executives.

Fuel price concerns have increased as petrol prices have continued to rise. Twenty five per cent of executives now rate the cost of fuel as the most important influence on the business in the year ahead. Meanwhile wages growth concerns have risen nine per cent to be on par with fuel prices.

According to Dr Duncan Ironmonger, Dun & Bradstreet’s economic consultant, the Australian economy has started to slow.

“Last week’s March quarter GDP numbers confirm the start of an economic slowdown. Although income tax cuts in the Federal Budget will provide some stimulus, interest rates and credit will remain tight for the remainder of 2008,” said Dr Ironmonger.

“The Reserve Bank left the cash rate unchanged at its last three meetings however it could make a further increase if demand does not continue to moderate or if expectations of continued high inflation begin to affect wage and price setting.

“Tight monetary conditions, high petrol prices and low consumer sentiment should continue to dampen consumer spending and housing construction through the next few quarters.”

The D&B index for expected sales is down 28 points to -13, with 27% of executives expecting an increase in sales and 40% expecting a decrease. The profits index is down 20 points to -17, with 23% of executives expecting profits to rise and 40% expecting a fall.

Employment expectations are down 14 points to an index of -10, with 10% of executives expecting an increase in staff and 20% expecting a reduction. Capital investment expectations are down 12 points to an index of minus six, with 9% of executives expecting an increase and 15% expecting to cut spending. Inventories expectations are down 10 points to an index of -10.

The selling prices index is up five points to an index of 50, with 57% of firms expecting to raise prices and 7% expecting to decrease them.

 

More bad news for business

D&B expected sales and profits indexes (yello line: profits; blue line: sales)

Australian executives predict business conditions will further deteriorate in the September quarter affected by a slowing economy, spiralling fuel prices and toughened credit conditions, a survey shows.
 
According to the latest Dun & Bradsheet (D&B) Business Expectations Survey, fuel prices have hit businesses hard with almost 90 per cent of participants indicating they have had a detrimental impact on operations, a 28% increase in three months. 32 per cent of firms have noticed a downturn in consumer spending in the past three months and 21 per cent have been negatively affected by the strong Australian dollar.
 
Credit market conditions represented another significant concern. Two-thirds of firms participated indicated that a tightening credit market will have a negative impact on operations, with 11% anticipating a very negative impact.
 
The September quarter is also expected to bring a steep decline in sales, profits, employment growth and capital investment, with all of these indexes now in negative territory.

Sales and profits growth expectations have fallen sharply, down 36 and 33 points respectively from December quarter highs. Capital investment expectations have dropped 13 points to an index of minus seven, with employment growth expectations at the lowest point since June 1991.

 

As an exception to the deteriorating conditions, selling price expectations have climbed six points to an index of 51.

 
D&B CEO Christine Christian said continually escalating costs are eating away the profit margins of Australian businesses.
 
“Fuel prices are continuing to soar, interest rates remain steady but high and consumer spending is dropping away – all of these factors are squeezing the profit margins of Australian businesses," she said.
 
“Executives face challenging decisions about how to manage these costs. Moves to increase prices will likely be met by customer backlash however as costs continue to rise and margins get thinner, failure to pass on these costs will have detrimental impacts on profitability.”
 
The company’s economic consultant Dr Duncan Ironmonger said the economic slowdown in Australia is happening quickly.
 
Bureau of Statistics data for May reveal very weak growth in retail sales and a further decline in the number of new dwelling approvals. The small boost from income tax cuts starting this month will do little to boost consumer sentiment and spending in an environment of high food and petrol prices and high interest rates," he said.
 
  • The D&B index for expected sales is down 31 points to -16, with 25% of executives expecting an increase in sales and 41% expecting a decrease.
  • The profits index is down 24 points to -21, with 22% of executives expecting profits to rise and 43% expecting a fall.
  • Employment expectations are down 15 points to an index of -11, with 10% of executives expecting an increase in staff and 21% expecting a reduction.
  • Capital investment expectations are down 13 points to an index of minus seven, with 8% of executives expecting an increase and 15% expecting to cut spending. Inventories expectations are down nine points to an index of minus nine.
  • The selling prices index is up six points to an index of 51, with 58% of firms expecting to raise prices and 7% expecting to decrease them.
 

Bleaker picture for the coming quarter

A latest business expectations survey has painted a bleaker outlook for the December quarter, with sales and profits growth expectations projected to fall further affected by the continuing high oil prices.

The survey, released by Dun & Bradstreet (D&B), indicates all indexes except selling prices will remain in negative territory for the second consecutive quarter, with 47 per cent of executives rate petrol prices as their primary concern, climbing to the highest level in 16 months.

In the June quarter, 43 per cent of businesses experienced declining sales and almost half of executives anticipate further decline in sales in the quarter ahead. The actual sales index for retailers has been hit the hardest, falling 52 points from the December 2007 to the June quarter.

The report also shows a similar picture illustrated by profits expectations, with 50 per cent of executives anticipating a decline in profits in the December quarter. 13 per cent of executives expect a decrease in capital investment, while just seven per cent anticipate an uplift.

D&B’s CEO Christine Christian said business confidence has fallen away dramatically as the economy continues to slow.

“The expectation of business executives have continued to fall, with sales and profits expectations particularly hard hit,” she said.

“These indices have fallen for two consecutive quarters, a trend driven largely by declining sales and profits results and continually escalating business costs.”

Meanwhile fuel prices continue to exert a detrimental impact on operations with nine in ten executives reporting that fuel costs are hurting their business, a 28 per cent increase since March.

The situation is expected to worsen, as 47 per cent of executives rate the cost of fuel as the most important influence on operations in the coming quarter.

“With the economy expected to slow further at least in the short term, businesses need to be particularly diligent about managing their operations to ensure they remain financially stable throughout the challenging conditions,” Ms Christian said.

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