WholesaleInvestor

05 May 2010

Executives expecting - strong finish to the financial year

By Christine Christian, CEO, Dun & Bradstreet

Findings from the latest Dun & Bradstreet National Business Expectations Survey, (looking at the expectations of Australian executives for the June 2010 quarter) showed that Australian executives are looking to finish the financial year strongly. However strong expectations for employment growth and increased selling prices, combined with concerns about wage increases point to capacity concerns within the economy.

Capital investment expectations moved up nine points from the previous quarter reaching the highest level in more than six years, twenty six percentage points higher than the June quarter of 2009. Eighteen percent of firms surveyed expect to increase capital investment, while just two percent are planning to decrease spending in this area. Non-durables manufacturers have the highest of capital investment expectations (an index of 21) and retailers the lowest (an index of 9).

Actual capital investment in December quarter 2009 is the highest in more than six years and has now had three positive quarters after five negative quarters from March 2008 to March 2009. Sixteen percent of firms had more capital investment and four percent less capital investment than in the December quarter of 2008. The December 2009 quarter was the first quarter in exactly two years that all sectors had actual capital investment levels in positive territory.

The profits index is now at its highest level in five years and is 74 points higher than the trough of the June quarter 2009. Almost one third of respondents (29 percent) expect their profits levels to increase in the June quarter. This comes on top of a number of improving profit forecasts in the first quarter from major retail firms such as Myer and David Jones. The retail sector

however lost its top spot as the sector with the highest profit expectations with executives from the wholesale sector reaching an index of 23 for the quarter (32 percent expect an increase and 9 percent a decrease.)

The expected sales index rose five points to 33 exceeding the strong positive level of the two previous quarters. The sales index is now at the highest level in six years and is up 81 points on the trough of the June quarter 2009. Forty five percent of firms expect an increase in sales and 12 percent a decrease in sales in the June quarter 2010. Wholesale executives have the highest sales expectations with 50 percent expecting an increase and 9 percent a decrease.

In response to these strong sales expectations inventory levels expectations are also increasing. Inventory level expectations for the June quarter 2010 are at the highest point in more than five years. Eighteen percent of executives expect to increase inventories, while nine percent plan to reduce stock levels. The expectations of non-durables manufacturers have reached the highest level in more than seven years with a net 15 percent of firms expecting to increase stock levels in the June quarter.

The final index of the net proportion of firms with actual increases in inventory levels is three for the December 2009 quarter, up four points on the previous quarter. The increased contribution of stocks is an important indicator of business confidence and represents a significant improvement since the low actual index of -11 for March quarter 2009.

Employment expectations for the June quarter 2010 are nine percentage points higher than the March quarter of 2010 reaching an index of 9. Fourteen percent of firms are planning to increase staff levels and five percent to reduce employee numbers.

These figures are a 35 percent improvement on the June quarter 2009 expected employment index of minus twenty six percentage points. All sectors now have positive expectations for growth in employment numbers, only the second time this has occurred since the June 2008 quarter. Retailers have the highest index of a net 10 with 14 percent expecting to increase employment and four percent expecting to decrease staff numbers.

While these results are positive for the Australian economy they do signal an increase in competition for labour and raw materials pointing to potential capacity constraints in the economy. In response, expectations for selling prices have risen by ten percentage points to an index of 19, the first rise in five quarters. This is a clear sign that executives are expecting to recoup some of their increased costs through increased prices signalling the return of inflationary pressures in the economy. One in four (26 percent) firms expects to raise prices in the June quarter, while seven percent expect to lower prices.

Overall, there had clearly been a great deal of caution shown by Australian executives in the second half of last year, largely due to the wind down of the Government stimulus package. However much of this caution seems to have dissipated over the past quarter.

The return in confidence in the majority of key indices such as sales, profits and employment and an improvement in long term indicators such as capital investment and inventory demonstrates that businesses believe that this improvement will not just be short term. However, executives and policy makers must be alert to the signals on capacity constraints.

Christine Christian

Christine Christian is recognised as a leading authority on credit reporting, risk and debt management and business intelligence. Christine was appointed CEO of Dun & Bradstreet Australia and New Zealand (D&B) in 2001 after leading the management buy-out of these operations from the D&B global company. During her 20 year career in this rapidly growing industry, Christine has gained extensive experience in the financial services and trade credit sectors. She has worked with all of the major banks and many of Australasia’s largest commercial entities, to develop standards and processes for credit risk assessment and new customer acquisition.

Dun & Bradstreet

D&B is the world’s leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world’s most valuable commercial database with information on more than 150 million companies.