Interest rate and fuel price concerns continue to increase

Inflationary pressure persists and interest rate and petrol price concerns continue to increase according to figures from the latest Dun & Bradstreet (D&B) Business Expectations survey.

Sixty two per cent of firms anticipate that their selling prices will be higher in the coming quarter than the corresponding quarter in 2007, indicating that inflationary pressure is continuing to impact businesses. Just three per cent of executives expect their prices to be lower.

Executive concerns regarding interest rates have increased significantly since the previous survey, up thirteen per cent. Thirty nine per cent of executives now rank interest rates as the most important influence on operations in the coming quarter. Retail executives continue to demonstrate the highest level of concern, with forty five per cent ranking interest rates as the most significant influence on operations.

Fuel price concerns have also increased reaching their highest level in six months. Thirty one per cent of executives now rank the cost of fuel as the most important influence on operations.

Meanwhile recent movements in petrol prices have had a negative impact on seventy eight per cent of businesses, a rise of 15 points since December.

According to Christine Christian, Dun & Bradstreet’s CEO, evidence of inflationary pressure and the increase in interest rate and fuel price concerns is to be expected.

“The Reserve Bank’s most recent increase in the official cash rate has pushed interest rates to their highest level in more than a decade and the major banks are moving quickly to pass this cost to businesses. The sharp increase in executive concerns regarding interest rates is a reflection of this activity,” said Ms Christian.

“Fuel price concerns are also valid. The cost of fuel continues to be high and is expected to remain this way for some time.

“Inflationary pressure, interest rates and fuel prices are expected to persist throughout 2008. This means executives need to ensure they are monitoring and managing all aspects of the business that can be controlled.”

The tightening credit market continues to be a concern for executives. Despite a decrease of three per cent since the previous survey, executive concerns remain high. Currently sixty per cent of executives expect credit market conditions to have a detrimental impact on operations – this is up on the fifty seven per cent that recorded concern in October and November.

The outlook for growth in profits and sales has declined again from high December quarter expectations. Thirty three per cent of executives expect an increase in profits and thirty six per cent expect an increase in sales. Despite the decline in expectations since the December quarter, sales growth expectations are up twelve points on those for the June quarter of 2007.

At thirty two, the net retailers’ sales expectations index is especially strong, being eighteen points above the all firms index of fourteen.

Expectations for capital investment have strengthened with the overall net index now at four per cent. Durables manufacturers are showing quite strong growth in capital investment with an index of eleven per cent.

The employment indicator remains in positive territory after one quarter in the negative. Eleven per cent of executives now expect to have more staff in the quarter ahead than they did a year ago, while nine per cent expect to decrease staff numbers.

According to Dr Duncan Ironmonger, Dun & Bradstreet’s economic consultant, the Australian economy should continue to do well in 2008.

“The Australian economy should continue to benefit from stronger commodity prices and growth in major Asian economies. As well, business executives are expecting better growth in sales in first half in 2008 than the first half of 2007,” said Dr Ironmonger.

“Despite these positives, the rising cost of funds is a major problem for businesses and the Reserve Bank has signalled that it is likely to make a further increase in official interest rates in 2008 if inflation does not abate.”

The D&B index for expected sales is down four points to 14, with 36% of executives expecting an increase in sales and 22% expecting a decrease. The profits index is down eight points to zero, with 33% of executives expecting profits to rise and 33% expecting a fall.

Employment expectations are down one point to an index of two, with 11% of executives expecting an increase in staff and 9% expecting a reduction. Capital investment expectations are up three points to an index of four, with 9% of executives expecting an increase and 5% expecting to cut spending. Inventories expectations are down one point to an index of one.

The selling prices index is up six points to an index of 59, with 62% of firms expecting to raise prices and 3% expecting to decrease them.

In summary:

Outlook for June quarter 2008:

– Expectations for selling prices have increased, with 62 per cent of firms anticipating their prices will be higher in the June quarter than a year earlier.

– The outlook for capital investment is stronger with the overall index now at 4 per cent.

– Expectations for sales and profits growth have fallen, 36 and 33 per cent of executives respectively expect increases in these indexes.

– The outlook for employment growth is slightly weaker but remains in positive territory.

Interest rates:

– Thirty nine per cent of executives expect interest rates to be the most important influence on their business in the quarter ahead, an increase of 13% per cent since the previous survey.

Tightening credit market:

– Executive concerns regarding the credit market remain high, with 60 per cent expecting a tightening market will have a negative impact on operations.

Petrol prices:

– Thirty one per cent of executives expect fuel prices to be the most significant influence on operations in the coming quarter, up 4 per cent since the previous survey.

– Recent movements in petrol prices have had a negative impact on 78 per cent of businesses, with 20 per cent a significant impact.

Actual for December quarter 2007:

– Growth in sales was the highest since the March quarter 2004.

– Employment growth was the best in three years.

– Profits growth was flat after one positive quarter.

– Capital investment growth was positive.

– Selling price rises were four points below expectations.

Promising signs for an easing of inflationary pressure

The latest Dun & Bradstreet Business Expectations Survey is showing early signs of success in the fight against inflation, with a five point decrease in selling prices expectations since the previous survey.

The survey reveals that fifty seven per cent of firms now anticipate higher selling prices in the June quarter than a year earlier, while three per cent expect a decrease. This result comes on the back of national accounts and retail sales figures which indicate that domestic spending has started to moderate.

Following high December quarter expectations, the outlook for growth in profits has declined to an index of zero. Thirty two per cent of executives now expect an increase in profits and thirty two per cent expect a decline. This flat growth outlook reflects the impact of lower sales volumes and higher costs.

Sales growth expectations have also declined from December quarter highs, with 38 per cent of executives now expecting an increase in sales growth in the June quarter. Despite the decline the sales index is significantly higher than twelve months ago, with sales growth expectations up thirteen points on the June 2007 quarter. The net retailers’ sales expectations index is particularly strong; at twenty nine it is fourteen points above the all firms index of fifteen.

Expectations for capital investment have strengthened marginally with the overall net index now at two per cent. Durables manufacturers are showing quite strong expectations for growth in capital investment with the index at seven per cent.

The employment indicator has returned to negative territory after one quarter in the positive. Twelve per cent of executives now expect to have more staff in the quarter ahead than they did a year ago; thirteen per cent expect to decrease staff numbers.

Executive concerns regarding the tightening credit market remain high, with more than half (56%) of executives expecting a tightening of credit will have a negative impact on operations.

Meanwhile, just nine per cent of executives anticipate that they will seek finance or credit to help their business grow in the quarter ahead. These findings come as the RBA warns that banks will make borrowing harder as part of the process of reigning in excess growth in the economy.

According to Christine Christian, Dun & Bradstreet’s CEO, early indications of an economic slowdown are positive however the wide reaching impacts of inflation are likely to continue impacting business for some time.

“Early signs of an economic slowdown are beginning to show through in executive expectations for sales, profits and selling prices. National accounts data and retail sales figures are also indicating a slow down,” said Ms Christian.

“The impact of the high cost of funding and the tighter credit market are being seen in expectations for business growth – less than ten per cent of executives expect to seek finance to grow their business in the coming quarter.

“All of these figures indicate that the RBA’s fight against inflation is beginning to take effect. However, despite this, it is likely that inflationary pressure will continue to have wide-reaching impacts on the economy for some time.”

Topping the list of concerns this month, thirty nine per cent of executives rank interest rates as the most important influence on operations. This figure remains unchanged since the previous survey however concerns from the retail sector have increased by eight per cent. Fifty three per cent of retail executives now rank interest rates as the most significant influence on operations in the coming quarter. The continued high level of concerns regarding interest rates, particularly by retailers, comes as the official cash rate has reached a 12 year high.

Wages growth has overtaken petrol prices as a primary concern for executives. An increase of 14 per cent in this index since December has pushed concerns to their highest level in eight months. Twenty seven per cent of executives now expect wages and salary growth to be the most important influence on their business in the quarter ahead. This relatively steep increase is likely a reflection of executive concerns that high inflation figures could feed back into wages expectations.

Petrol price concerns have eased slightly but remain high as oil prices continue their surge above USD $100 a barrel. Twenty six per cent of executives rate the cost of fuel as the most important influence on operations.

Meanwhile, the impact of recent movements in petrol prices remains unchanged since the previous survey, with 78 per cent of executives noting a negative impact on operations.

According to Dr Duncan Ironmonger, Dun & Bradstreet’s economic consultant, the Australian economy needs to see an increase in capacity and a reduction in demand if inflation is to be constrained in 2008.

“Capacity increase will be a slow process dependent on increases in labour supply and infrastructure. As a result, all official policy action is focused on quickly reducing demand,” said Dr Ironmonger.

“According to the December quarter national accounts and retail sales for January, a slow down in consumer spending is under way. A continuation of this slow down is critical if inflation is to ease this year.

“The Reserve Bank pushed the cash rate up to 7.25% last week. This move combined with other increases in the cost of funds has resulted in home mortgage rates reaching a level of around 9%; this may be sufficient to put the inflation genie back in its bottle.”

 

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.

 

Taming the inflation tiger

The latest Dun & Bradstreet Business Expectations Survey is showing signs of success in the fight against inflation. Selling price expectations have reached an 18 month low following a decrease of eight points since the March quarter.

Meanwhile, the combination of high interest rates and market turmoil has fuelled executive concerns regarding the impact of the credit market on operations. With a fifteen per cent increase since the previous survey, more than two thirds (71%) of executives now expect a tightening of credit will have a negative impact on operations. This finding comes as business payment terms are blowing out and banks are tightening their lending standards amidst the continued fall-out from the US sub-prime mortgage crisis. All of these factors are making cash increasingly difficult to access.

Reflecting the impacts of lower sales volumes and higher costs, expectations for profits growth have fallen. Declining to an index of three, thirty two per cent of executives now expect an increase in profits and twenty nine per cent expect a decline.

Sales growth expectations have also declined however the index is 13 points higher than 12 months ago, with thirty nine per cent of executives expecting an increase in sales growth in the June quarter. Sitting five points above the all firms index at twenty, the net retailers’ index is particularly strong.

Capital investment expectations have strengthened significantly to an overall index of six per cent. At an index of eleven per cent, durables manufacturers are showing the strongest expectations for growth in this area.

The employment indicator has strengthened slightly, with fifteen per cent of executives now expecting to have more staff in the quarter ahead than they did a year ago; eleven per cent expect to decrease employee numbers.

According to Christine Christian, Dun & Bradstreet’s CEO, the impact of the credit crisis and higher interest rates are hitting Australian businesses.

“The surge in executive concerns about tightening credit conditions and the continued high level of unease regarding interest rates indicates that the impacts of the credit crisis have well and truly hit our shores,” said Ms Christian.

“Businesses are now operating in an environment where cash is of paramount importance yet they are being forced to deal with tighter lending standards and business payments that are more than three weeks overdue.

“Supporting the survey’s findings and indicating that executives are acting cautiously, the latest figures from the RBA show that business borrowing slowed in February; a clear demonstration that tight financial conditions and market turmoil are helping to slow demand.

“Evidence of a moderation in demand was a crucial factor in the Reserve Bank’s decision to keep interest rates on hold at its latest meeting, a move which will no doubt be welcomed by executives.”

Topping the list of concerns for the third month running, thirty six per cent of executives rank interest rates as the most important influence on operations. At seventeen per cent above the all firms index, 53% of executives in the retail sector are concerned about the interest rates.

This high level of concern is a reflection of a moderation in consumer spending.

Wages growth concerns have increased by 14 per cent since December to reach their highest level in eight months.

Twenty seven per cent of executives now expect wages growth to be the most important influence on their business in the quarter ahead, reflecting expectations that the skills shortage may result in upward pressure on wages.

Fuel price concerns have dropped sharply to the lowest level recorded by the survey. Just 15 per cent of executives rate the cost of fuel as the most important influence on operations. The impact of recent movements in petrol prices has also dropped. Down 17 per cent since February, 61 per cent of executives have noted a negative impact on operations.

According to Dr Duncan Ironmonger, Dun & Bradstreet’s economic consultant, Australian business executives should welcome the Reserve Bank’s recent decision to leave official interest rates unchanged.

“The substantial tightening in monetary conditions since mid 2007 is driving a moderation in demand growth which should take some pressure off inflation,” said Dr Ironmonger.

“Despite expectations that inflation will remain relatively high in the short term, and above the Reserve Bank’s target range, the Bank anticipates that inflation will decline over time if demand slows as expected.

“The latest D&B survey supports the view that demand growth and inflation are moderating. However, the upcoming Federal Budget will influence any decision by the Reserve Bank to adjust rates in the coming months.”

The D&B index for expected sales is down three points to 15, with 39% of executives expecting an increase in sales and 24% expecting a decrease. The profits index is down five points to three, with 32% of executives expecting profits to rise and 29% expecting a fall.

Employment expectations are up one point to an index of four, with 15% of executives expecting an increase in staff and 11% expecting a reduction. Capital investment expectations are up five points to an index of six, with 12% of executives expecting an increase and 6% expecting to cut spending. Inventories expectations are down two points to an index of zero.

The selling prices index is down eight points to an index of 45, with 50% of firms expecting to raise prices and 5% expecting to decrease them.

©2019 All Rights Reserved. MHD Magazine is a registered trademark of Prime Creative Media.