Australian business is getting more gloomy, boosting arguments for a rate cut

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The trend is your friend – or in the case of the Dun and Bradstreet Business Expectations Survey, it’s not.

That’s the clear message from the April survey, which showed “another drop in expectations, with businesses maintaining gloomy forecasts for the three-month period to 30 September 2016”.

Meanwhile, the Actuals index has also experienced a sharp fall, with the figure dropping to its lowest point since June 2013, the company said.

Dun and Bradstreet said that the Expectations Index, which is the average of the survey’s measures of sales, profits, employment and capital investment, fell to 9.6 points from 12.7 points last and 17.6 points 2 quarters ago. That’s a worrying trend as is the steep decline in the Actuals index, which the company said “plummeted to 5.0 points, compared with 12.7 points last quarter”.

That brought to an end a run of three consecutive quarters of growth.

The Dun and Bradstreet survey appears downbeat compared to its more ebullient cousin the NAB’s monthly business survey which yesterday saw a dip in conditions and confidence yet which NAB chief economist Alan Oster said continues to point to a “very favourable business environment for Australian firms” providing an “upbeat near-term outlook for the Australian economy”.

Stephen Koukoulas, economic adviser to Dun & Bradstreet, was more circumspect than NAB’s Oster saying:

Business expectations took a further step lower in April as did the reporting of ‘actual’ activity. Most disconcerting was a slump in both actual and expected profits, which have dipped to multi-year lows.

That’s weighed on optimism which Koukoulas said had “soured in the past few months to the point where sales, expected selling prices and employment have also slowed markedly”.

That’s a conundrum he said given “it is not clear what is driving this less optimistic tone”. He did however posit that election and policy uncertainty as a result of the “very long election campaign” was weighing on respondents to the Dun’s survey.

In terms of actual results the survey revealed some disturbing outcomes for the first quarter of the year which suggest a material slowing from Q4 2015’s pace.

The survey showed:

  • Actual employment for the March quarter was down significantly, with the index at 1.1 points, compared to 8.5 points in the previous quarter, and down from 5.1 points last year.
  • Sales activity was down at 12.5 points, compared to 22.4 points in the previous quarter, but up from 10.1 points last year.
  • The Actual Profits Index decreased from 8.0 points in Q4 2015 to -3.0 points, and 4.8 points recorded at the same time last year.
  • Capital Investment activity decreased to 9.2 points from 11.9 points in the previous quarter, but was up from 6.2 points last year.
  • Selling prices were down, with the index at 6.3 points compared to 11.2 points in the previous quarter and 10.9 points last year.

That suggests a little bit of monetary accommodation from the RBA via a rate cut today might actually be needed.

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