Business suffers as consumers pocket cash

Date: 08.03.2011

Consumer deleveraging is having a marked impact on business expectations for the June quarter, according to latest D&B survey

By Jayne Munday | March 8, 2011

The growing number of consumers pocketing their disposable income and paying down debts is having a marked impact on business expectations for the June quarter, according to a new survey.

The latest Dun & Bradstreet Business Expectations survey shows sales expectations are now at their lowest level in almost two years, dropping 14 points to a net index of 17.

Expectations are particularly weak for the retail sector, which has struggled to stimulate consumer interest even with heavy discounting.

The decline in sales expectations is flowing through to the outlook for profits with the overall profits index dropping 17 points to a net index of 13.

However, while the drop is significant profit expectations still remain well above the 10-year average.

Capital investment and inventories expectations are also experiencing declines as a result of the more subdued sales and profits outlook.

The capital expectations index has declined 6 points to a net index of 7, which is well down on the previous four quarters and just above the 10-year average.

This fall in investment expectations follows a lower net index (6) for actual capital expenditure during the December quarter of 2010.

Inventory expectations are down 5 points to an index of 5 as more executives plan to de-stock in response to the sales outlook.

Employment expectations have also declined and are now at their lowest level in five quarters – an index of five.

At the same time rising wages have been replaced by uncertainty about interest rates as the number one concern for executives.

FLOW-ON EFFECT
D&B CEO Christine Christian says today’s results show that consumer deleveraging is becoming an entrenched trend that is not only affecting retailers, but also flowing through to their suppliers in the wholesale and manufacturing industries.

"Heavy discounting by retailers does not appear to be dissuading consumers from paying down their debt and increasing their savings," Christian says.

"Retailers now appear to be accepting the permanency of this trend and have adjusted their expectations for the June quarter accordingly," she says.

As a result, Christian says manufacturers and wholesalers have also lowered their expectations and the consumer effect washes through the supply chain.

AUSSIE DOLLAR, CREDIT
The latest Business Expectations Survey also reveals that 48 percent of executives see that a continuing strong Australian dollar will have a positive impact on their business in the quarter ahead – for 21 percent a significant impact.

Only 16 percent expect a high dollar to have a negative impact; for 37 percent it will have no impact

Forty-two percent of executives indicated that they intend to increase their cash reserves in the next three months – this is a rise of 9 percentage points in two months.

Meanwhile, 18 percent of executives are likely to seek finance or credit to grow their business in the quarter ahead, with 76 percent not likely and 6 percent not sure.

However, the number of firms indicating that access to credit will be the most significant influence on their business in the quarter ahead is 16 percent (down two percent since last month).