Businesses tip higher profits, but conditions still patchy: Study

Businesses will end the year on a reasonably positive note, according to Dun & Bradstreet’s latest National Business Expectations Survey, but the outlook for 2013 is mixed, with rising profit levels but a “patchy” employment market.


The survey, conducted in October, shows sales expectations have fallen 12 points to an index of 21. However, the index remains at its second highest level in the last eight quarters.


This follows results for the September quarter, which show 43% of firms increased sales compared to the prior year.


The selling prices index is down seven points to five; the lowest level since the survey began in 1998 and 24 points below the 10-year average of 29.


According to D&B, this result is consistent with ongoing low inflation.


Meanwhile, employment expectations have weakened. The index has fallen two points to -1 and is now two points below the 10-year average index.


If current trends continue, D&B predicts the unemployment rate will rise in the months ahead.


Encouragingly, the profits index has risen four points to an index of 24. It is now at the highest level in eight quarters and is 19 points above the 10-year average index.


Capital investment expectations are also up. The index rose two points to 17 and now sits 12 points above the average index (a reading of 5) of the last 10 years.


Actual results for the September quarter show the sales index rose four points while the profits index was up 15 points. The selling prices index also rose, up eight points to an index of 11.


According to D&B economic advisor Stephen Koukoulas, businesses are ending the year on a reasonably positive note.


“Overall business conditions remain solid, driven by a rise in net sales and profits during the September quarter,” Koukoulas says.


“However, expectations for the quarter ahead are patchy, with a weaker outlook for employment and moderate sales. The most positive aspect of the outlook is a sharp rise in expected profits.


“There has been a sharp fall in expected selling prices, which suggests that inflation could fall further over the near term.


“The inflation outlook remains a critical element for consideration by the Reserve Bank of Australia and we are likely to see interest rates edge lower over coming months.


“A softer employment outlook and the prospect of higher unemployment could result in an interest rate cut at this month’s meeting.”


The findings come on the back of figures from the Reserve Bank, which show business credit fell by 0.3% in October, while housing and personal loans increased.


Overall, there was a rise of just 0.1% in private sector credit last month, strengthening the case for a December rate cut.


But according to D&B, it’s petrol prices – not interest rates – that are expected to have the greatest influence on operations during the March quarter of 2013.


Almost 40% of businesses nominated fuel prices are their primary concern, up 10 points from last month.


Interest rates fell by the same amount, with 23% of executives ranking interest rates as the primary influence on their business.


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