Price expectations fall on soft demand
According to Dun & Bradstreet’s latest Business Expectations Survey, the Selling Price Expectations Index for the third quarter has dropped to 14.5 points, down from 24 points last quarter and to its lowest level since 2013.
The correction comes as fewer businesses indicate that they will increase their prices in the next three months. Twenty-four per cent of businesses plan to raise their prices in Q3 2015, down from 31 per cent in the previous quarter. At the same time, more businesses plan to cut their selling prices, up from 8 per cent to 10 per cent.
Similarly, the Actual Selling Price Index has fallen to 10.9 points, with fewer businesses reporting they had lifted their prices in the three months to March. According to the survey, 24 per cent of businesses raised their prices during the first quarter of the year, compared to 26 per cent in the previous quarter, while 13 per cent reported having lowered their prices, up from 10 per cent.
According to Adam Siddique, head of corporate affairs at Dun & Bradstreet, the findings suggest that businesses will maintain their reserved outlook into the third quarter of the year.
“Doubts about demand and the likelihood of increased spending in the economy continue to play out in our survey findings,” said Siddique.
“In response, many businesses have lowered their selling price expectations in addition to also correcting their forward-expectations for sales activity and profits.
“Until we see some resilience in confidence levels, among both businesses and consumers, it’s likely that business expectations will continue to soften through the rest of the year.”
According to the Dun & Bradstreet survey, 57 per cent of businesses remain more optimistic about growing their operations this year, compared to last year, although this response is down from 65 per cent last month and a high of 73 per cent in January.
The decline in optimism comes as the Business Expectations Survey finds that one-in-four businesses (26 per cent) consider weak demand to be their biggest barrier to growth in the year ahead, the most common response in the survey. Additionally, 49 per cent of businesses view consumer confidence as the issue most likely to influence their operations.
Dun & Bradstreet’s Business Expectations Index, the average of the survey’s measures of sales, profits, employment and investment, has declined from its Q1 2015 peak of 23.9 points, to reach 17.2 points for the September quarter. At this level, the index is down on the 19.3 points for the same period last year, although it remains at a relatively high level for the post-GFC period.
Contributing to the decline in the aggregate index are falls in the employment outlook, with the Employment Expectations Index dropping to 11.7 points from 16.8 points last quarter and 12.7 points last year. According to Dun & Bradstreet, 21 per cent of businesses plan to hire in the third quarter of the year, while nine per cent will cut staff and the majority will keep employment levels unchanged.
Encouragingly, business spending plans have been maintained, with the Capital Investment Expectations Index reaching 12.8 points for Q3 2015, up marginally from 12.6 points in the previous quarter and 12.1 points in the year prior. Twenty-one per cent of businesses indicate they will increase their level of capital investment next quarter, while eight per cent will reduce spending.
“Business expectations remain a little softer than the recent peak at the start of 2015, with the aggregate Business Expectations Index easing during the September quarter,” said Stephen Koukoulas, economic ddviser to Dun & Bradstreet.
“Interestingly, two key aspects for the economy – capital investment and employment – have gone in opposite directions.
“The outlook for employment has fallen to its lowest level in over a year, while expected investment is more resilient, in a sign that low interest rates and a lower Australian dollar may be helping the non-mining parts of the economy.
“The recent budget announcement allowing for accelerated depreciation for the small business sector may have also helped to support capital expenditure plans.
“The overall picture from the business sector is that the economy remains soft, neither sustaining bouts of optimism, nor falling back towards severe weakness.
“Until there is a clearer picture, official interest rates set by the Reserve Bank are likely to remain near current levels for a considerable period of time,” Koukoulas said.
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