Businesses are increasingly pessimistic about the year ahead, according to the latest Dun & Bradstreet Business Expectations Survey, which shows businesses have lowered their predictions for sales, profits and employment for the September quarter.
The data comes as insolvency figures show 812 companies collapsed in April, down from the March figure but up from 737 from the same period in 2010. Over the financial year, 7,985 companies have collapsed, up by 466 from the previous corresponding period.
The D&B survey paints a disappointing picture. Sales expectations are down six points, the lowest of the latest eight quarters, while profit expectations dropped by 10 points to negative two – eight points below the 10-year average.
The inventories index has risen two points to three, but the capital investment index has fallen six points to negative one – what D&B calls a “rapid decline in just two quarters”. The selling index has remained flat at 17.
“I think we’re seeing the continuation of the trend that started a few months back,” D&B corporate affairs manager Damian Karmelich says. “If you take a longer look at what is happening you see a sharp deterioration between the end of last year and the first few months of this year.”
“I think there are a couple of factors here, but it’s quite clear we’re operating on a two-speed economy. You have the mining sector which feels buoyant, and the rest, led by retail, which is struggling with consumers who are deleveraging.”
The survey shows 29% of executives have ranked interest rates as the primary influence on their business, up by 4% from last month, with 23% expecting wages growth to be the most pressing influence.
And 29% say fuel prices will be their main concern, a fall of 6% in two months, while 19% believe access to credit will be the biggest influence.
No doubt many businesses are fearing another interest rate rise. While economists do not expect the RBA to raise rates this afternoon, the central bank is expected to lift rates at least once by the end of 2011.
“The public is impacted by interest rates because of consumer confidence, but businesses never really enjoyed those lower interest rates because cuts weren’t passed on. They’ve been paying a higher rate for awhile now,” Karmelich says.
“Increased interest rates will just add to the burden, however, and it will make consumers less likely to part with their dollars. And borrowing costs for businesses will be hit as well.”
D&B chief executive Christine Christian says the results show executives are becoming cautious as a result of more “conservative” consumers.
“Ultimately, the lure of cheaper imports is hurting the local manufacturing sector and this is reflected in projected sales levels and profit expectations that have hit their lowest point in two years,” she says.
D&B also notes the high Aussie dollar is having a two-pronged effect. While retailers are being hit as dollars head offshore, many importers are thriving. In fact, 35% say the strong dollar is helping their business, and only 15% say it is hurting them.
Karmelich says it is this disconnect between many industries that has caused the emergence of a two-speed economy, particularly when industries such as mining and retail are contrasted.
“There are some structural adjustments for retailers occurring, particularly those competing with international companies. I think this is weighing down business expectations for the start of the new financial year.”
“It’s kind of interesting, because if you look at the macro data for the March quarter we had this negative growth, but at the macro level we’re doing quite well – although that robustness is really occurring in mining.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
