Australia | Aug 06 2013
– Business confidence stabilising
– Profit expectations stronger for Q4
– Investment, hiring off agenda
– More promising after election
By Greg Peel
History suggests that aside from perhaps some initial volatility, there is little correlation between stock market performance and which political party is in government. Stock market performance reflects business performance, so for Australian businesses the primary issue is not one of who wins the election, but that uncertainty is removed once a government is formed.
Business confidence, and the year-end outlook for profits, sales, employment and capital investment, have been declining over most of 2013 according to the Dunn & Bradstreet’s National Business Expectations surveys, but the latest survey suggests confidence may be stabilising as businesses look ahead to the December quarter – a time when the election will be decided and the benefits of RBA rate cuts and the lower Australian dollar will be flowing through to business performance.
The latest survey suggests 24% of businesses are anticipating increased earnings in the fourth quarter, with the profit index measure edging up to plus 14.9 from plus 13.2 in the previous survey. Profit expectations for the manufacturing sector in particular have turned around on the Aussie’s fall to under US90c, with that sector’s profit index jumping to plus 19.9 from plus 1.5.
Profit expectations may be improving but businesses remain reluctant to spend, and cost controls mean hiring new workers is not on the agenda for now. The employment index measure in the survey has stopped falling, but remains in negative territory at minus 1.3, up from minus 3.3. A negative number indicates businesses are more likely to fire than hire on a net basis.
Business owners have had a tough first half, notes Dunn & Bradstreet CEO Gareth Jones, battling high operating costs, poor cash flow and consumers preferring to save rather than spend. Lower interest rates should boost spending, and profit margins should improve on the lower currency. While there is little intention to increase capital investment or hire workers, business owners are at least more confident about revenues and profits returning.
The outlook should shift to more optimistic from stable once the election is over. According to the survey, 38% of businesses intend to delay significant business decisions and investments until the after the election. Given the timing, this post-election boost would chime in with the typical Christmas surge in retail spending.
It all sounds promising, but the reality is business expectations remain weaker than one year ago, with a number of factors worrying business owners. Of those surveyed, 35% expect cash flow will be an issue ahead while 23% find rising fuel prices most worrisome. Some 51% see high operating costs as their biggest barrier to growth in the year ahead and only 6% intend to borrow in the December quarter to finance growth.
Banks be warned.
“While the economy is not yet strong, the tentative signs of a bottoming or a moderate upturn in most components of the Business Expectations Survey is encouraging,” said Stephen Koukoulas, Economic Advisor to Dun & Bradstreet.
“With a further interest rate cut and the lower Australian dollar still to show up in economic activity, there is a strong chance that we could see a turning point that could signal a stronger year for the economy in 2014. The most positive tone in the outlook is reinforced by the fact that over one-third of businesses are delaying their spending and investment decisions until after the election.
“If this spending does in fact transpire after the poll, it will further boost the growth outlook,” he added.
Technical limitations
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.