Business surveys are important. They attempt to take the pulse of this important sector of the economy and in doing so give a lead on economic activity down the track.
So it’s not good news that the results of Dun & Bradstreet’s (D&B) latest February Business Expectations Survey have highlighted a big fall in expectations as we head toward the end of this financial year.
D&B said businesses were “issuing gloomy forecasts for the three-month period to June 2016”.
Specifically, the expectations index, the average of the survey’s measures of Sales, Profits, Employment and Capital Investment, fell 5.7 points to 13.2 points.
That closes the gap between the expectations and “actuals” index as businesses appear to recognise this is as good as it gets at the moment. But to put that in a longer term context, expectations are still well above the 10-year average of 7.0 points.
Stephen Koukoulas, an economic advisor to D&B, said the fall in expectations was broad based, “with expected sales, profits, employment and new capital expenditure slipping to their lowest level in around two years”.
“It is likely that the global financial market ructions in the early part of 2016 and now the policy uncertainty associated with the upcoming election could be dampening the spirits for the business sector,” Koukoulas said.
But worryingly for the economic outlook, D&B report:
The Profit Expectations Index, which plunged to 11.8 points, is at its lowest point since late 2012. Sales (25.4 points) and Employment (7.7 points) expectations also fell significantly, dropping to lows not seen since 2013, while the Capital Investment Index fell to a single digit figure (7.8 points) for the first time in more than two years.
Lower profit expectations, decreased plans for hiring, and weakening investment plans suggests Australian businesses might be a handbrake on growth in the months ahead.
For the moment though Koukoulas isn’t worried.
“The softening in expectations is not yet a concern for the economy. Interest rates are at historical lows, there are clear signs of a turn-around in commodity prices which if sustained, should be a positive for the economy, and the Australian dollar remains at a level which is boosting the competitiveness of the export sector,” he said.
But he added that “any further slippage in expectations in the months ahead would spark concerns about the growth momentum in the economy, so the next few surveys will be of vital importance.”