Sales expectations hit 10-year high

Higher selling prices raise inflation concerns

4 February 2014

The outlook for stronger sales activity has surged to a 10-year high, with 47 per cent of businesses expecting increased trade during the June quarter as confidence builds about the year ahead.

Findings from Dun & Bradstreet's latest Business Expectations Survey show the sales expectations index has risen for a third consecutive quarter to hit 37.5 points for Q2 2014, its highest level since Q4 2003.

According to D&B, business confidence has been building since the final quarter of 2013, with a lower Australian dollar, record-low interest rates and healthy Christmas trade feeding through to a stronger 2014 outlook. Most recently, the Business Expectations Survey has found that 70 per cent of businesses are more optimistic about growth this year compared to 2013. In addition, 38 per cent expect higher profits, 20 per cent intend to borrow to expand their business, and 32 per cent do not see any major barrier to their growth.

Although a lower currency and borrowing costs are supporting domestic consumer spending and have eased operating conditions for many businesses, D&B's survey indicates that inflationary pressures are building. The selling prices index for the June quarter has jumped to 27.9 points, its highest level since Q3 2009, as 35 per cent of businesses indicate they will raise prices compared to seven per cent which plan to discount. This outlook follows recent official inflation numbers showing a 0.8 per cent jump in the consumer price index for the December quarter. 

BEX chart 1 Q2 2014 - prelim

"The steep lift in sales expectations is a confident statement from the business sector, which is viewing this year with healthy levels of optimism," said Gareth Jones, CEO of Dun & Bradstreet. 

"These recent findings consolidate a broad pick-up in the business outlook that was first observed in the final quarter of last year with more positive expectations for sales, profits, employment and investment. 

"Of equally positive note, firms are reporting fewer obstacles to growth this year and revealing a greater willingness to start accessing credit to expand their operations.  "Among the survey's findings, however, the continued rise in the selling price index and forecasts of higher unemployment this year have the potential to curb future sales activity," Mr Jones added.

With the exception of the transport, communications and utilities sector, an improved sales outlook has been reported across all industries surveyed. The finance, insurance and real estate sector is particularly positive, with 58 per cent expecting increased sales in Q2 2014, compared to 18 per cent at the same time last year.

BEX chart 2 Q2 2014 - prelim

"The upswing in the economy continues to unfold, although the only moderate levels for expected employment and capital expenditure suggest a fully-fledged upswing may still be a few months away," said Stephen Koukoulas, Economic Adviser to Dun & Bradstreet.

"It is encouraging to see a strong lift in firms' expected sales; a sure sign that GDP growth is on track to accelerate in the first half of 2014.

"It appears that inflation pressures are building rapidly, with expected selling prices surging to a five-year high," Mr Koukoulas added. 

"This price outlook from the business sector follows the recent official inflation data which confirmed an uncomfortably sharp rise in inflation over the latter part of 2013. The expectations for higher selling prices suggest even more upside inflation risks into 2014.

"For the RBA, the Business Expectations Survey is good news. The economy is clearly responding to an easy monetary policy and the lower Australian dollar - perhaps too well, and it would be no surprise to see it start hiking interest rates in the months ahead."

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