CONFIDENCE RISES TO DECADE HIGH
Written on the 2 September 2014
BUSINESSES are feeling more confident about profits than they have for the past decade according to the latest Dun & Bradstreet Business Expectations Survey.
Overall, the profit expectations index has lifted to 29.1 points, up from 19.9 in the last quarter and 21.1 last year.
Based on 10-year history, the index is edging its decade high of 29.7 points.
History also shows actual profits usually follow expectations, with intermittent periods where they surpass.
Other great expectations included a lift in the employment expectations index and sales expectations index from the previous quarter.
Plans for capital investment have continued to life for the fifth consecutive quarter, while selling prices expectations have fallen.
CEO of Dun & Bradstreet – Australia and New Zealand, Gareth Jones, says the latest survey highlights a resilience in the business sector’s outlook but shouldn’t be used to generalise feelings across industries.
“Over the past 12 months, the majority of businesses have been reporting greater levels of optimism about the current business environment compared to 2013,” says Jones.
“This view has now been carried through to the end of 2014, with 68 per cent of businesses more confident about growing their operations in the fourth quarter, while sales and profits expectations have also jumped.
“Despite the general improvement, however, it is clear that the economy is delivering a mixed performance and that some sectors expect further headwinds.”
The retail; wholesale; services; finance, insurance and real estate sectors have lifted their profit expectations for the fourth quarter.
Manufacturing; construction; transportation, communications and utilities have conversely revised their expectations downwards from the prior corresponding period.
Stephen Koukoulas, economic advisor to Dun & Bradstreet, says this level of confidence is typically only coupled with strong economic conditions.
He also says lower selling prices would mean good news for those hoping for a hold on interest rates.
“Not only are expected sales at an 11-year high; a sign of buoyant activity, but expected profits are at a level well above the long run average,” says Koukoulas.
“In the past, firms have only held this level of optimism when the underlying economic conditions were strong.
“D&B’s data suggest that the economy is poised to run at – or even above – trend levels in the second half of 2014, with expected employment and capital expenditure also well above the long run average.
“Encouragingly for the economy’s progress, expected selling prices continue to moderate, which indicates that inflation pressures are very well contained.
“A low inflation climate will be vital for the Reserve Bank of Australia to keep its interest rate settings on hold.”
Dun & Bradstreet based the survey on 800 responses obtained from a sample of executives during July and August this year.