The Dun and Bradstreet business expectations index continues to trade in the Twilight Zone:
Business earnings are expected to return to pre-GFC highs during the final three months of this year on the back of sustained levels of optimism and healthy sales forecasts, with retailers particularly upbeat about increasing their profits. According to Dun & Bradstreet’s latest Business Expectations Survey, the profits expectations index has lifted to 29.1 points, up from 19.9 in the last quarter and 21.1 last year. With 40 per cent of businesses anticipating higher profits during Q4 2014, compared to 11 per cent that expect a weaker return and 59 per cent that anticipate flat results, the index is now edging its 10-year high of 29.7 points. After diverging from forecasts over the past 12 months, actual profits reported by businesses for the past quarter have begun to trail expectations, with the actual index for Q2 profits rising to 6.03 points.
Here are the charts. Profits boom:
Sales boom:
Employment boom:
Capex boom:
Selling prices imploding boom:
The Kouk doesn’t know if he’s Arthur or Martha:
According to Stephen Koukoulas, Economic Adviser to Dun & Bradstreet, the lift in business sector activity has accelerated. “Not only are expected sales at an 11-year high; a sign of buoyant activity, but expected profits are at a level well above the long run average,” Mr Koukoulas said. “In the past, firms have only held this level of optimism when the underlying economic conditions were strong,” he noted. “D&B’s data suggest that the economy is poised to run at – or even above – trend levels in the second half of 2014, with expected employment and capital expenditure also well above the long run average. “Encouragingly for the economy’s progress, expected selling prices continue to moderate, which indicates that inflation pressures are very well contained. A low inflation climate will be vital for the Reserve Bank of Australia to keep its interest rate settings on hold,” Mr Koukoulas noted.
I thought we needed an emergency rate cut?
I can only point out that this index has its problems. It tends to lag rather than forecast conditions and is very underweight mining (and I suspect manufacturing), giving it very false signals for the economy in total.
