Business confidence dives, sales and profits slump

Two surveys have painted a bleak picture of business conditions in the months ahead, with business confidence plunging to record lows and 60% of executives bracing for a drop in profits.

The NAB’s monthly survey of business confidence and conditions found the jump in confidence seen in December was a result of the Rudd Government’s first stimulus package. Business confidence fell 12 points in January to a new record low of -32 points.

Measures of forward orders and employment remain stalled at recessionary lows, while capital spending and capacity utilisation expectations have fallen further, and exports have also dropped sharply.

“That the kick in business confidence in December was more than completely reversed was somewhat disappointing,” NAB’s chief economist Alan Oster says.

“The critical question is; what happens next? And unfortunately there are strong indicators in the survey to again point to further falls ahead – rather than a flattening out in the underlying downward momentum.

“Also, to the extent that wholesaling is a leading indicator of expected future retail activity, the massive falls in that sector’s confidence are even more worrying.”

Dun & Bradstreet’s survey of business expectations for the June quarter has shown sales and profits expectations have slumped to fresh lows, with 53% of executives expecting sales to fall in the quarter and 60% forecasting a fall in profits.

More worrying are expectations around employment and investment, with expectations for employment and capital investment following the same downward trend, and with 24% of firms expecting to cut back on staff and 10% preparing to decrease capital investment.

The fall in the Australian dollar continues to be a concern for firms, with 68% saying they have been hurt by the falling dollar and 74% preparing to raise prices in the coming quarter.

Dun & Bradstreet’s CEO, Christine Christian, says businesses must continue to focus on fundamentals such as cashflow.

“The recently announced Government stimulus package will provide some assistance to

Australian firms, however without a solid focus on the fundamentals the pressures for some businesses will likely become insurmountable.”

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