Survey finds industries outside mining are feeling the pain.
IF THERE was any doubt that a big chunk of the Australian economy outside the mining industry is flirting with recession, then the latest Dun & Bradstreet survey on business expectations for the September quarter confirms it.
Dun & Bradstreet's survey, released yesterday, warns that business expectations are at levels seen just before the worst of the global financial crisis. It comes at a time when business is grappling with the introduction of new imposts, including a carbon tax and, in the case of iron ore and coal companies, a new resources rent tax.
The survey of executives warns that anticipated interest rate rises, largely in response to the strength of the mining sector, are putting pressure on the already embattled retail and manufacturing sectors. The high dollar certainly isn't helping the situation.
It is not a good start to the new financial year and comes as the Reserve Bank met to discuss interest rates. The RBA yesterday left the cash rate at 4.75 per cent for the eighth straight month and strongly suggested that growth through 2011 was now unlikely to be as strong as earlier forecast. What a surprise - not.
With retail numbers falling 0.6 per cent in May and building approvals falling by 7.8 per cent, and with major challenges in Europe and the US, the RBA altered its phrasing about whether the recent global weakness is temporary or a new trend.
As Craig James from CommSec said: "The Reserve Bank finally gets it. While the bank continues to note the positive broader benefits to the economy of the 'terms of trade' boom, it realises that people can't see the gains. For instance, our trade surplus with China has increased by over $14 billion over the past year - or around $650 for every man, women and child. Now, if those dollars were actually paid out, it may be different. But the increased profits for miners boost share prices and dividends and are reflected in the average worker's compulsory superannuation. Unfortunately for many people, they won't see those gains for 30 years."
Not surprisingly, interest rates remain the key area of influence on business, with three quarters of executives surveyed saying they will avoid accessing credit in the coming quarter as they wait for the RBA to make a move on rates. Indeed, 17 per cent of firms believe access to credit will be the most important business influence in the quarter ahead - down 2 per cent since last month.
But the chances of a rate rise any time soon are slim, despite the rhetoric. The reality is with negative economic growth reported last quarter, mainly due to the impact of the Queensland floods, the last thing the RBA will want is to lift interest rates at a time when another negative quarter of economic growth cannot be ruled out.
Dun & Bradstreet's survey is grim. The outlook for the next quarter does not instil confidence. Business expectations for sales, profit, capital investment and employment are all down. According to the survey, profit and employment expectations have fallen into negative territory for the first time in two years and sales expectations also hit two-year lows.
In the case of capital investment, the expectation is the worst it has been for the past 10 years, while sales expectations are down four points to an index of 10, the lowest of the past eight quarters and three points below the 10-year average index of 13.
There is no doubt that business is hurting.
adele.ferguson@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
What did the latest Dun & Bradstreet survey reveal about business expectations in Australia?
The Dun & Bradstreet survey for the September quarter warned that business expectations have fallen to levels seen just before the worst of the global financial crisis. Sales, profit, capital investment and employment expectations are all down: profit and employment slipped into negative territory for the first time in two years, sales hit two‑year lows, and capital investment expectations are at their weakest in a decade.
Which sectors are feeling the most pain according to the article?
The article highlights that industries outside the mining sector — especially retail and manufacturing — are the most embattled. Retail sales fell 0.6% in May and building approvals dropped 7.8%, and those sectors are under pressure from a strong dollar and expected interest‑rate moves tied to mining strength.
How are interest‑rate expectations affecting business decisions and credit access?
Anticipation of interest‑rate rises is influencing business behaviour: about three quarters of executives surveyed said they would avoid accessing credit in the coming quarter while waiting for the RBA to act. Seventeen percent of firms named access to credit as the single most important business influence for the quarter ahead (down 2% from the prior month).
What did the Reserve Bank of Australia (RBA) do and how does it shape the economic outlook?
The RBA left the cash rate unchanged at 4.75% for the eighth straight month and signalled that growth through 2011 was unlikely to be as strong as previously forecast. The article notes the RBA has become more cautious about whether recent global weakness is temporary or a new trend, and it suggests the chances of an imminent rate rise are slim given recent negative economic growth and flood impacts.
Why is the high Australian dollar mentioned as a problem for parts of the economy?
The article says the high dollar is not helping the situation because it adds pressure on export‑exposed and import‑competing industries such as manufacturing and retail. A stronger currency can make Australian goods more expensive overseas and cheaper imports more competitive domestically, squeezing local businesses' margins.
How is the mining sector different from other parts of the economy in this report?
The mining sector is benefiting from a terms‑of‑trade boom and stronger profits, which have boosted miners' share prices and dividends. Craig James of CommSec is quoted saying those gains are reflected in compulsory superannuation but many people won’t see direct benefits for decades. The article also notes new imposts — including a proposed carbon tax and a resources rent tax for iron ore and coal companies — affecting the sector's policy context.
What do falling sales and investment expectations mean for jobs and profits?
According to the survey, falling sales and capital investment expectations have pushed profit and employment outlooks into negative territory. That suggests businesses are planning to cut back on spending and hiring, which could weaken profits and increase unemployment pressure in the short term.
What are the key takeaways everyday investors should note from this survey and article?
The article’s main takeaways are that a large part of the Australian economy outside mining is flirting with recession, business confidence is weak across sales, profits, investment and employment, and credit conditions are a major concern for firms. The RBA is cautious and has kept the cash rate steady, and the high dollar plus global challenges are weighing on non‑mining sectors — all useful context for weighing sector‑specific risks and market sentiment.
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