Dun and Bradstreet released its December quater Business Expectations index this morning and it makes strange reading. According to D&B:
Australian firms recorded a dramatic lift in expectations for the June quarter, with the outlook for sales hitting its highest level in almost a decade. The latest Dun & Bradstreet National Business Expectations Survey of manufacturing, retail and wholesale firms conducted in January, revealed preliminary expectations for June quarter sales (+21) and profits (+8) were more than twice March quarter forecasts. Sales expectations are now at their strongest level since the December quarter 2003, well before the onset of the global financial crisis. Dun & Bradstreet CEO, Christine Christian, said the strong sentiment was encouraging and corresponded with D&B trade payments and collections data which indicated that business performance tended to experience a cyclical peak during the second quarter of the year. “Historically, leading indicators of financial stability, such as cash flow, have improved during the June quarter as firms gain momentum. We are also no doubt seeing businesses increasingly factoring in the impact of further interest rate reductions on their operations,” Ms Christian said. This improvement has not, however, translated into plans for long-term employment growth, with businesses recording a three point drop in employment expectations for the June quarter. “This would appear to indicate that businesses are still taking a cautious, wait-and-see approach on trading conditions before looking to expand their operations or their workforce.” The drop in June quarter employment expectations follows an actual December quarter employment result of -1, a drop of six index points since the September 2011 quarter. The D&B Business Expectations Survey shows that for the June 2012 quarter:
- Sales Expectations have climbed above the previous high point for December quarter 2010 and are now 25 points above the ten-year average index;
- Profit Expectations continue to recover from the first negative index in two years and are now 14 points above the ten-year average index
- Employment Expectations have dipped by three points and are only two points above the ten-year average index; and
- Investment Expectations have reached a plateau and are seven points below the previous peak in December quarter 2010
“Despite the general improvement in business expectations some caution was still evident through measures of credit growth across a majority of sectors,” Ms Christian said. Nearly one-third (31%) of businesses reported that they planned to increase cash reserves during the June quarter, up seven percentage points since December. Two-thirds of firms also reported that they planned to avoid new lines of credit. This aligns with recent RBA figures showing business lending growth of just 0.3 per cent in December.
Hmmm…take a look at the chart. Soaring sales and profit expectations but little follow through on capex spending or inventory builds and a fall in employment intentions. Let’s assume this survey is worth listening to for a moment and speculate on what these divergences might mean. A positive way to look at it is through the productivty prism I outlined at the start of this year: that there’s likely to be an acceptance of the new normal this year with businesses everywhere seeking to make more with less.
A less sanguine reading is that the businesses surveyed aren’t really as confident on their headline outlooks suggest. The fact that it’s a manufacturing and retail survey may hint that that is at least part of the story.
Kind of looks like hoping for the best and plannig for the worst.
Business Expectations Return to Pre-GFC Levels
