D&B Business Expectations level out

The monthly Dunn and Bradstreet Business Expectations survey is out and shows a slight hiatus in the deterioration:

Business confidence levels are showing signs of stabilising, with the year-end outlook for profits, sales, employment and capital investment beginning to level out. After declining through much of the year, initial expectations for the December quarter have steadied as businesses look beyond the federal election, and as the effect of lower interest rates and a lower Australian dollar flow through the economy.

These findings are from Dun & Bradstreet’s latest Business Expectations Survey which shows that 24 per cent of businesses are anticipating increased earnings in the fourth quarter, with the profits index edging up to 14.9 points, compared to 13.2 in the previous quarter. With the dollar easing to around US 90 cents, a number of industries will be better positioned to control their profit margin. Indicative of this, profit expectations for the manufacturing sector have jumped to 19.9 points, from 1.5 in the previous quarter. While businesses expect to see a pick-up in profit levels in the coming months, they remain reluctant to spend, with the capital investment index sliding further into negative territory.

Additionally, as businesses seek to stay lean and control costs, hiring new employees remains off the agenda. Although the employment index has arrested its long-term slide, rising from -3.3 points in the previous quarter to -1.3, it remains in negative territory, indicating that more businesses plan to reduce staff than hire.

The survey also offers some evidence that the election is playing a role in decsions:

“As we await a period of sustained economic stability, it may be that the conclusion of the election is the event that kicks these initial findings on sentiment from stable to optimistic,” he added. According to D&B’s research, 38 per cent of businesses are likely to delay significant business decisions and investments until after the election, suggesting there could be a boost in activity to match the traditional Christmas period lift in consumer spending.

Regular readers will know that I’m skeptical of the accepted wisdom that election is our main problem but evidence is evidence. The Koukbot Telephunken U-47 added:

“With a further interest rate cut and the lower Australian dollar still to show up in economic activity, there is a strong chance that we could see a turning point that could signal a stronger year for the economy in 2014. “The most positive tone in the outlook is reinforced by the fact that over one-third of businesses are delaying their spending and investment decisions until after the election. “If this spending does in fact transpire after the poll, it will further boost the growth outlook,” he added.

There isn’t a strong chance of any such thing. There is a reasonable prospect of s short term bounce post election and again after Christmas. Given the magnitude of the mining investment headwind both will fade shortly thereafter.

Business Sentiment Settles in Year-End Outlook – D by David Smith