Local firms have registered a sharp decline in confidence off the back of continued global economic uncertainty and financial instability.

According to Dun & Bradstreet's latest Business Expectations Survey, sales expectations fell five points and profit expectations remain flat based on results recorded last month. The drop in sentiment was particularly evident among manufacturers and wholesalers where sales expectations plummeted by more than 15 points since October.

Caution by business is also being reflected through increasing concern over interest rates, despite last month's rate cut, with one third of executives surveyed citing this as their biggest concern heading into 2012.

According to Dun & Bradstreet CEO, Christine Christian, the question of contagion from the escalating situation in Europe is increasingly an issue for Australian businesses, which to this point have felt relatively sheltered from the crisis. 

"The sudden drop in business sentiment over the course of the last month, following fairly solid results in October, indicates the degree of volatility that is being felt in the marketplace," Ms Christian said.

"This is obviously being exacerbated, particularly in sectors like retail and manufacturing, by a high Australian dollar and the changing composition of the economy off the back of the mining boom."

The D&B Business Expectations Survey shows that for the March 2012 quarter:

• Although sales expectations are at their highest level in twelve months, since October expectations are down five points, with expectations down 29 points for wholesalers since last month;
• Profit Expectations continue to recover from the first negative index in two years but remain more than 20 points below this time last year. Amongst manufacturers, profit expectations have dropped 4.5 points over the last month;
• Employment Expectations are also at the highest level since January this year, however, since October staffing expectations have fallen across sectors.
• Investment Expectations have risen five points and are now significantly above the long-range average, however, month-on-month have dropped across all sectors except retail.

Of particular note has been the significant increase in the proportion of firms citing access to finance as an issue that will affect their business. This has nearly doubled to reach 14 per cent since the middle of this year.

Not surprisingly, over the same period, the proportion of firms citing access to, or a shortage of funding as the biggest barrier to growing their business, has nearly doubled.

"While results for the quarter to date remain solid, this month's dramatic dampening of sentiment is a warning that local firms are coming up against a number of key growth and productivity challenges," Ms Christian said.

While sales and employment expectations for the quarter to date are at their highest point in 12 months, sentiment remains well down on the first quarter 2011. The profit outlook for the March 2012 quarter remains in the single digits (+7), significantly below levels seen at the same time last year (+30). This is strongly correlated with a weakening in sales expectations by 14 points over the same period.

Expected Sales, Profits, Employment, Inventories and Capital Investment Indices

Retailers bucked the trend, however, recording renewed optimism heading into the March quarter off the back of a strong anticipated result for the annual 'New Year Sale' period.

The industry's profit expectations reached positive territory for the first time in 12 months, despite over 50 per cent of retail executives anticipating slowing demand next quarter. Sales (+6), profit (+13) and capital investment (+7) expectations all improved for retailers during November.

According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the latest D&B Business Expectations Survey shows that, despite a downward adjustment in November of the very high expectations for the first quarter of 2012 shown in the October survey, the overall outlook for the quarter ahead are much better than those for the last three quarters of 2011.

"The contrasts between the different sectors of the Australian economy are vividly shown by the latest ABS data.  These show that dwellings approvals were continuing on a downward path and retail sales in October were barely keeping pace with inflation," said Dr Ironmonger.

"However, the latest ABS data on capital expenditure show the growing strength of the Australian economy. The Bureau reports a very large increase in the expected capital expenditure for the 2011-12 financial year to $158 billion, 27 percent more than in 2010-11."

Detailed results for the Dun & Bradstreet Business Expectations Survey are below.

The latest D&B National Business Expectations Survey shows�

Outlook for the March quarter 2012

• Sales expectations are up six points to an index of 17, the highest of the last four quarters and five points above the 10-year average index of 12;
• An increase of two points has taken the profits expectations index to 7, just two points above the 10-year average index;
• Employment expectations are up six points to an index of 7, now five points above the 10-year average index of 2;
• The inventories index is up seven points to an index of 10, eight points above the 10-year average index of 2;
• A rise of five points has taken the capital investment index to 11, a rapid turn-around in two quarters from the rapid decline of the previous three quarters and now five points above the average index (6) of the last 10 years;
• The selling prices index is down two points to 15, 16 points below the 10-year average of 31.

Issues expected to influence operations in the March quarter 2012

• 30 per cent of executives rank interest rates as the primary influence on their business - up three percentage points in one month;
• 24 per cent of firms believe fuel prices will be their main concern in the quarter ahead - a rise of five percentage points in two months;
• 22 per cent of firms expect wages growth to be the primary influence on operations - down five percentage points from last month;
• 14 per cent of firms believe access to credit will be the most important business influence in the quarter ahead - up two percentage points from last month.

Actual results for the September quarter 2011

• Capital investment has maintained a positive run of ten consecutive quarters, with a net index of seven. 15 per cent of firms increased investment while 8 per cent cut spending;
• 36 per cent of firms increased sales compared to the September quarter 2010, while 21 percent experienced lower sales;
• Twelve per cent of firms increased staff while 9 per cent reduced employee numbers;
• The profits index was up five points to an index of 4, 25 per cent of firms increased profits and 21 per cent recorded lower earnings;
• The selling price index was unchanged at an index of 12, 26 per cent of firms raised prices and 14 per cent decreased prices.

About the Survey

D&B Australasia conducted the latest Business Expectations Survey in November 2011. Each quarter 1,200 business owners and senior executives representing major industry sectors across Australia are asked if they expect increases, decreases or no changes in their upcoming quarterly Sales, Profits, Employment, Capital Investment, Inventories and Selling Prices. Since its introduction in Australia in 1988, the Survey has proven to be a highly reliable measure of economic performance.