Business expectations fall in September quarter but prospect of rate cut lifts 2012 outlook

Businesses are pessimistic about the last few months of the year as trading conditions remain weak and consumers keep saving, but companies are looking forward to a better performance in the first quarter of 2012 when the impacts of an anticipated rate cut finally set in, new reports show.

The reports come on the same day as the Reserve Bank is tipped to cut interest rates and set the mood for businesses over the rest of the Christmas season.

According to new business expectations surveys from both the Australia Chamber of Commerce and Dun & Bradstreet, businesses aren’t so keen about the next few months but feel the new year will deliver a better outcome.

According to ACCI, the index of expected economic performance fell from 46 to 40.5 over the September quarter – the lowest level since June 2009 – showing businesses are becoming pessimistic about the economy over the next year.

Expectations of general business conditions have fallen due to global market volatility, with expectations for trading in the December quarter falling into contractionary territory for the first time since June 2009.

The index of selling prices fell over the September quarter as well, along with the index of employment, although businesses are expecting a pick-up in hiring over the next three months before Christmas. Investment in buildings and structures, and plant and equipment, also fell.

Small firms had the weakest performance over the September quarter, with small business conditions and employment in plant and equipment remaining contractionary. But over the December quarter, medium firms are expecting the strongest improvement.

ACCI director of economics and industry policy Greg Evans said in a statement the results show sales revenue expectations have fallen to the lowest level in two years, noting this weakness and low inflation gives the RBA scope to cut rates.

“Any reduction in official interest rates against the current economic backdrop will encourage consumer demand,” he says.

However, the D&B study paints a much more optimistic picture, with businesses expecting trading conditions to improve if interest rates are lowered this month.

It found that businesses are expecting improvements in sales, up 11 points, profits, up two points, employment, up seven points, along with investment, while 25% fewer businesses have anticipated interest rates being the primary impact on their business.

Sales expectations are at their highest in a year, with employment expectations also at a year high. Profit expectations are up from their first negative index in two years, while investment expectations are now above the long-term average.

But it’s not all great news. Profit expectations for the March quarter are in the single digits – below the March 2011 quarter. And retailers are still suffering, with more than 25% voicing concern over wages and salary growth.

But overall, the move towards a positive expectation is strong. D&B economic consultant Duncan Ironmonger said in a statement the improved prospects show 2012 is set to begin with a more confident outlook.

“The survey shows a welcome pick-up in the expected growth in employment across all sectors. If this is realised and sustained, we may see further favourable moves in the unemployment rate next year.”