Business expectations continue to fall amid rates pressure

Business expectations are continuing to fall, according to the latest Dun & Bradstreet survey, as interest rates remain the greatest concern among business owners.

The latest Dun & Bradstreet business expectations survey, which details the outlook for the September quarter, is based on the responses of 1,200 business owners and senior executives.

The survey reveals sales expectations are down six points to eight; the lowest reading of the last eight quarters and five points below the 10-year average.

Employment expectations are down seven points to -4, the first negative reading in eight quarters, and six points below the 10-year average.

The inventories index is up by two points to three, but profits expectations have taken a dive, falling 10 points to -2, eight points below the 10-year average.

When asked to identify the issues expected to influence operations in the September quarter, 29% of respondents said interest rates, up 4% since last month.

Almost a quarter of firms expect wages growth to be the primary influence on operations – up 3% in a month – while 20% believe fuel prices will be their main concern in the upcoming quarter.

This is closely followed by access to credit, with 19% of respondents claiming this will be the most important business influence in the quarter ahead.

According to the report, executives are increasingly pessimistic about the outlook for the new financial year, despite selling prices remaining steady and the majority of firms experiencing sales growth in the March quarter.

“Those in the manufacturing, wholesale and retail sectors will allocate less capital to fixed assets and take on less staff in the coming quarter as profit expectations from key decision-makers falls well below the 10-year average,” the report says.

“With the sales outlook at the lowest level in eight quarters, firms will either actively reduce employee numbers or simply stall the recruitment process during the September quarter.”

“Nor will the vast majority of executives be seeking access to credit, as many seek to shore-up cash reserves over the coming months.”

According to Dun & Bradstreet chief executive Christine Christian, the data shows the emergence of a de-leveraging trend among local businesses.

“These figures are an indication of increasing caution from executives as a result of the conservative consumer… The lure of cheaper imports is hurting the local manufacturing sector,” Christian says.

“With consumers continuing to feel the effects of last year’s interest rate hike, retailers are [also] becoming more conservative with profit projections.”

“In particular, the continuously strong dollar is having a two-pronged effect, encouraging some consumers offshore while also making importing easier for a percentage of businesses.”

Meanwhile, the latest insolvency figures from the Australian Securities and Investments Commission shows company collapses are at a record high for April, up 10% since April 2010 and the second highest ever for the financial year to April.

Total company collapses for the financial year to date stand at 7,985, which is 466 more than for the same period last year.

South Australia bucked the national trend, with insolvencies increasing by almost 20% on the previous month, while WA also experienced record high insolvencies for April.

According to chartered accounting firm Taylor Woodings, the impact of the high Australian dollar on company insolvency rates will continue, particularly in hospitality, tourism and manufacturing.