The latest edition of the ACCI Business Expectations Survey shows that while actual business conditions in the June quarter remain poor, there was some slight improvement in most indicators. However, the difficult trading conditions have started to weigh on business expectations for the future. Some encouraging signs from the survey include the sharp improvement in export sales that saw it jump into positive territory, and continued improvement in the profits indicator (albeit from a very low base).
Business expectations have come off slightly but for most indicators, they remain in positive territory. Key indicators of current conditions such as sales, profits, investment and employment all remain anchored below the neutral level. Business reluctance to hire and invest is unsurprising given the long run of poor readings for Sales Revenue and Profits. Indices for Employment, Investment in Buildings and Structures fell and while there was some modest improvement in the indicator for Investment in Plant and Equipment all three indicators remained firmly in contractionary territory in the June quarter.
Somewhat concerning is that plant and equipment investment is in the midst of the longest contractionary period in the entire history of the survey, only the second of two such periods. The other period of contraction was in the aftermath of the global financial crisis, however, that period was significantly shorter and was followed by a sharp rebound over the course of 2009.
Labour market indicators remained muted in the June quarter. Employment fell back further into negative territory reversing the improvement in the previous quarter, overtime utilisation was deeply depressed and wage growth was unchanged in June but has fallen substantially since the second half of 2012. Also, the expectations indicator for employment fell slightly into negative territory.
Ms Kate Carnell, Chief Executive Office, Australian Chamber of Commerce and Industry, commented:
“The Business Expectations Survey shows trading conditions remain poor in the June quarter. Deeply depressed profitability and poor selling prices continue to undermine employment and investment. Difficult trading conditions are beginning to show signs of dampening business expectations for the future. Most expectations indicators remain in positive territory, however, all of them except expected export sales have fallen in the June quarter. The current survey readings indicate that the labour market will remain soft for some time and that the forecast transition from mining investment-led growth to broader-based economic activity remains elusive.
It is clear the mainstream economy is struggling to fire on all cylinders. There is still no convincing evidence of a recovery in investment beyond the mining sector and retail trade has softened in recent months following a sharp dip in confidence after the release of the budget. Labour market conditions continue to deteriorate, a trend that has been in place for more than three years now and are set to worsen in the year ahead. Muted wages growth should offer the Reserve Bank comfort that inflationary pressures are well contained and there is no pressing need to re-consider the current accommodative stance of monetary policy.”
The Survey covered the three months to June 2014 and had 2,339 respondents. A full copy of the Survey is available on the ACCI website at: http://www.acci.asn.au