Employment expectations fall to lowest recorded level

Australians business executives have given a mixed outlook on the economy as employment growth and capital investment confidence deteriorates but sales and profits expectations improve.
 
These findings are from the latest D&B Business Expectations Survey, which shows that business executives are seeing small signs of economic revival despite remaining in negative territory. The index for expected sales is still negative but has lifted 10 points to -38; similarly the index for expected profits has lifted 11 points to -46.
 
However, expectations for employment and capital investment are still on a downward trend, with a net 28 per cent of firms expecting to cut back on staff and a net 14 per cent anticipating a need to decrease capital investment. Likewise, expectations for inventory growth are at the lowest level since the 1991 recession, signalling that executives are not yet planning to increase existing stock levels.
 
Selling price expectations rose by 30 per cent in the nine months from June quarter 2008 to hit their highest level ever recorded for March quarter 2009. Expectations have now dropped back by 17 per cent for the September quarter. However, two in three (66%) firms expect that they will raise prices.
 
Changing credit market conditions and the Aussie dollar continue to impact firms, with almost six in ten (57%) businesses negatively impacted by the credit market. With a rise in the AUD in April, 60 per cent of firms report a negative impact of movements in the dollar, down from 67 per cent in March. Wholesale businesses still report the greatest impact from currency fluctuations, with 71 per cent now indicating a negative impact, down from 81 per cent in March.
 
Downward movements in petrol prices have shown through with a decline since the September quarter 2008 of 91 per cent in the number of executives negatively affected by fuel costs. Two per cent of firms now report a negative impact while 45 per cent report a positive effect.
 
Dun & Bradstreet CEO Christine Christian believes that the recent data indicate that while executives believe measures such as the Government stimulus packages will have a positive impact, the short term outlook is still negative in key areas such as employment.
 
“The declining outlook in employment growth continues to be a concern. The fact that the employment indicator has dropped to its lowest level recorded by the survey is a clear sign that this fear is shared by Australian executives,” said Ms Christian.
 
“Sales and profit expectations have improved but are still in negative territory. This indicates that expectations in these areas may have turned the corner. Ultimately we need to see consistent improvement in key areas like sales and profit expectations before it is evident that executives are feeling positive about Australia’s business prospects.”
 
The further small reduction in the official cash rate in April has impacted executives’ views on the issues that will influence their operations most in the quarter ahead. Forty five per cent of executives now rank interest rates as the primary influence on their business in the quarter ahead, down from 48% in the last survey.
 
Lower fuel prices are also an issue high on the agenda for Australian firms Sixteen per cent of executives anticipate that fuel prices will have the most significant influence on their operations in the September quarter, down 4% in one month. Meanwhile 18% of firms rank wages growth as their primary concern, an increase of 4% since February.
 
According to Dr Duncan Ironmonger, Dun & Bradstreet’s economic consultant, this week’s Federal budget will be closely examined to see whether it provides sufficient stimulus to ensure a sustainable recovery to the Australian economy.
 
“The Reserve Bank did not alter the cash rate last week leaving room for further cuts later in the year if needed. The latest D&B survey shows that although business expectations are still negative, there are tentative signs that the worst could be over,” said Dr Ironmonger.
 
The D&B index for expected sales is up 10 points to -38, with 13% of executives expecting an increase in sales and 51% expecting a decrease. The profits index is up 11 points to -46, with 10% of executives expecting profits to rise and 56% expecting a fall.
 
Employment expectations are down two points an index of -28, with 8% of executives expecting an increase in staff and 36% expecting a reduction. Capital investment expectations are down four points to an index of -14, with 3% of executives expecting an increase and 17% expecting to cut spending. Inventories expectations are down four points an index of -22.
 
The selling prices index is down 12 points to an index of 58, with 66% of firms expecting to raise prices and 8% expecting to decrease them.
 
Outlook for the September quarter 2009
The employment growth indicator dropped further to the lowest level recorded by the survey.
Sales and profits expectations have improved slightly but remain in negative territory. The sales index is up 10 points to -38 and the profits index is up 11 points to -46.
Selling price expectations have eased significantly, but two in three businesses (66%) still expect to raise prices in the September quarter.
Capital investment expectations are down again, with 17% of firms expecting to decrease capital investment.
 
Impacts of the Aussie dollar, credit market and petrol prices
  • Six in ten (60%) firms have been negatively impacted by recent movements in the Australian dollar, a fall of 14% in two months.
  • Recent changes in credit market conditions have negatively impacted a net 52% of firms (57% negative and 5% positive).
  • Forty five per cent of executives indicate that recent movements in petrol prices have positively impacted their business, up 2% in a month.
Issues expected to influence operations in the September quarter 2009
  • Forty five per cent of executives rank interest rates as the primary influence on their business in September quarter 2009, a decrease of 13% since February.
  • A rise of 2% has 18% of firms ranking wages growth as their primary concern.
  • Just 16% of executives expect fuel prices to be their primary concern.
Actual for March quarter 2009
  • Fifty per cent of firms experienced lower sales, up 1% on the December quarter.
  • Sixty one per cent of firms recorded lower profits, down 2% on the December quarter.
  • Sixty one per cent of firms raised selling prices, down 6% on the December quarter.
  • The employment index moved six points further into negative territory.
  • The capital investment index fell five points to -11.

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