MEDIA RELEASE Tuesday, 8 January 2013 PRICE OUTLOOK DROPS TO LOWEST POINT IN 24 YEARS Australian businesses are looking to negotiate a post-Christmas spending slump through continued discounting, with the outlook for selling prices during the first quarter of this year falling to a historic low. The latest data from Dun & Bradstreet's National Business Expectations Survey shows the selling price expectation index dropping to three points – its lowest level since the data was first analysed by D&B in 1988, and 26 points below the 10-year average index. Actual selling prices have now tracked below the expectations of business executives for 10 consecutive quarters, suggesting their businesses are facing an ongoing demand for discounts by their customers. In tandem with lower selling prices, businesses are anticipating reduced activity; with expectations for both their sales and inventory levels pulling back sharply from the previous quarter’s expectations. The D&B sales expectations index has dropped 14 points from a relative high in the previous quarter, to 19. These lower expectations are matched by survey findings that more than 57 per cent of businesses have identified ‘demand for their products’ as the main barrier to growing their business in the year ahead. 9 3 0 10 20 30 40 50 60 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Net Per Cent With Increases Quarter Selling Prices: D&B Indexes Sep Qtr 2009 to Mar Qtr 2013 Expected Expected index 10-year average = 29 Actual MEDIA RELEASE Inventories expectations are following this trend, with the index retreating from 24, to 16; an indication that businesses are looking to hold less stock in anticipation of sluggish spending activity. The selling prices, sales and inventories data reflect a continued sense that consumers and businesses will remain cautious about how they spend their money in 2013. According to Dun & Bradstreet’s CEO, Gareth Jones, businesses are continuing to focus on discounting to encourage spending. “We know that there is traditionally a drop off in spending following the Christmas period as consumers play catch-up with their household budgets and debts following an often expensive holiday period,” he said. “These findings suggest that businesses are planning to negotiate the spending slump by extending discounting through the New Year and by managing their stock carefully. “Although the most recent data has taken selling price expectations to a new low, it is part of a long downward trend that suggests ongoing discounting has become the new normal,” said Mr Jones. Profit expectation is the only D&B indicator to increase, moving upwards for the second consecutive quarter to an index of 23, and suggesting that Australian businesses are optimistic that their adjustments to selling prices and expenses will pay off. The latest outlook for capital investment has fallen away marginally from 15 to an index of 14; reflecting a correction in expectations following a significant drop in the actual capital investment index for the September 2012 quarter to minus five. In a nod to the broader economic outlook, employment expectations remain flat, with the D&B index sitting at the 10-year expected index average of one for the second consecutive quarter. The actual employment result also remains negative, with the D&B index at minus 2. Stephen Koukoulas, Dun & Bradstreet's Economic Advisor, highlighted the fall in selling prices as a reason why the RBA is on track to cut interest rates early in 2013. “The sharp fall in expected selling prices points to very low inflation outcomes for both the December and March quarters,” he said. “Consequently, it remains likely that the inflation rate will remain near the bottom of the RBA target band, which will be a critical issue for the RBA when it decides future interest rate settings. “The Business Expectations Survey also shows softer activity, with sales weakening and employment conditions remaining flat. The economy is clearly in a temporary lull with the key question as we move into 2013: is monetary policy sufficiently easing to spark stronger activity through the year?” Mr Koukoulas added. MEDIA RELEASE The latest D&B National Business Expectations Survey shows… Outlook for the March quarter 2013 • The selling prices index is down nine points to an index of 3, the lowest since the survey began in 1988 and now 26 points below the 10-year average of 29. • Sales expectations are down 14 points to an index of 19, and are now seven points above the 10-year average index of 12. • Employment expectations are unchanged at an index of one, which is now in-line with the 10-year average index. • Capital investment expectations are down one point at an index of 14, nine points above the average index (5) of the last 10 years. • The inventory index is down eight points to an index of 16, the second highest in nine years and is now 13 points above the 10-year average index of 3. • Profits expectations are up three points to an index of 23, the highest in eight quarters and now 18 points above the 10-year average index. Issues expected to influence operations in the March quarter 2013 • 57 per cent of executives expect demand for their products to be the biggest barrier to growing their business in the year ahead. • 25 per cent of businesses believe interest rates will be their biggest barrier to growth in the year ahead. • 42 per cent of businesses see fuel prices as having the greatest influence on their operations in the quarter ahead – up 3 points from last month. • 31 per cent of businesses think online selling by their competitors will have a small adverse affect on their operations – up 11 points from last month. Actual results for the September quarter 2012 • The selling price index increased six points to an index of nine; 24 per cent of firms raised prices and 15 per cent decreased prices. • The net sales index was up three points; 42 per cent of firms increased sales compared to the September quarter 2011, while 17 per cent experienced lower sales. • The profits index jumped 17 points to an index of 21; 41 per cent of firms increased profits and 20 per cent recorded lower earnings. • Capital investment recorded the first negative index since March Quarter 2009 with a net index of -5, with 25 per cent of firms reducing investment. • Eleven per cent of businesses reduced their employee numbers; the net employment index was negative for the second consecutive quarter, at minus two. • Thirty four per cent of firms increased their inventories, and the inventory index increased eight points to an index of 19, the highest actual index since March quarter 2003. MEDIA RELEASE 4 About the Survey D&B Australasia conducted the latest National Business Expectations Survey in December 2012. 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. The index figures used in the survey represent the net percentage of survey respondents expecting higher sales, profits, etc., compared with the same quarter of the previous year. The indices are calculated by subtracting the percentage of respondents expecting decreases from the percentage expecting increases. Methodology Each quarter D&B asks a sample of executives in manufacturing, wholesale and retail businesses across Australia if they expect an increase, decrease or no change in their quarter-ahead sales, profits, employees, capital investment, inventories and selling prices compared with the same quarter a year ago. The executives are also asked for actual changes over the twelve months to the latest completed quarter. The Australian survey began in March 1988 obtaining some 900 responses in the third month of each quarter. Since the middle of 1999, the survey has been conducted monthly, initially with about 300 responses each month. From September 2000, responses have been obtained from 400 executives each month. From July 2005, to simplify the interpretation of the survey data, the results have been presented as a sequence of preliminary, interim and final indexes. The 400 responses from the first month of each quarter give preliminary estimates of the quarter-ahead expectations and the quarter behind actual indexes. The 400 responses from the second month of the quarter are combined with those from the first month as interim estimates of the indexes based on 800 responses. The 400 responses from the third month are combined with those from the first two months to give the final expectations and actual indexes based on all 1,200 responses obtained during each quarter. In this issue, the final indexes for the latest quarters are based on the 1,200 responses obtained during October– December 2012. Charts and Tables It is common practice to present the results of business expectations surveys as indexes showing the net balance of the positive and negative responses. However, this method of aggregating responses loses relevant information about the relative proportions and rates of change of the two (positive and negative) groups. Accordingly, the detailed charts at the top of pages 5 to 10 in the D&B National Business Expectations Survey show separately the positive and negative components of each of the various indexes. These charts help provide a better insight into the expectations and performance of Australian business than that shown by movements in the simple aggregation of the positive and negative responses. The aggregate net balance indexes are shown in the charts at the bottom of pages 5 to 10. About Dun & Bradstreet D&B is the world’s leading provider of credit, marketing and purchasing information and receivables management services. D&B manages the world’s most valuable commercial database with information on more than 200 million companies, including 3 million in Australia, and millions of consumers. Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than 1.5 million times daily as part of D&B’s commitment to provide accurate, comprehensive information for its more than 150,000 customers. D&B’s data provides insights which improve business decision-making and outcomes. D&B National Business Expectations Survey – December 2012 Results 5 Sales Outlook (Quarterly Net Index) (Down 14 to 19) The positive and negative components of the D&B net indexes are shown in the adjacent chart. The March quarter 2013 sales expectations final index is 19; down 14 points from December quarter 2012. The index is now 7 points above the 10-year average of 12. Thirty six per cent expect an increase and 17 per cent a decrease in sales compared with March quarter 2012. The actual sales index for September quarter 2012 is 25; up three points on the June quarter. Forty-two per cent of firms had increased sales and 17 per cent had decreased sales compared with September quarter 2011. D&B National Business Expectations Survey – December 2012 Results 6 Profits Outlook (Quarterly Net Index) (Up 3 to 23) The positive and negative components of the D&B net indexes are shown in the adjacent chart. The final index for executives expecting an increase in profits in March quarter 2013 is 23; up three points on December quarter 2012. The index has risen to its highest level in eight quarters and is 18 points above the 10-year average index of 5. Forty-three per cent expect an increase and 20 per cent a decrease compared with March quarter 2012. The actual net profits index for June quarter 2012 is 21, up 17 points on the previous quarter. Forty one per cent had an increase and 20 per cent a decrease in profits compared with September quarter 2011. D&B National Business Expectations Survey – December 2012 Results 7 Employment Outlook (Quarterly Net Index) (No change at 1) The positive and negative components of the D&B net indexes are shown in the adjacent chart. The final index of the employment outlook for March quarter 2013 is one; no change from the index for December quarter and equal to the 10- year average index of 1. Seven per cent of executives now expect to employ more staff than a year ago and six per cent expect a decrease in staff numbers. The D&B employees final actual index for September quarter 2012 is minus two, up two points on the previous quarter. Nine per cent of firms had more staff in September quarter 2012 than a year earlier and 11 per cent of firms had fewer. D&B National Business Expectations Survey – December 2012 Results 8 Capital Investment Outlook (Quarterly Net Index) Down 1 to 14) The positive and negative components of the D&B indexes are shown in the adjacent chart. The capital investment outlook for March quarter 2013 is down one point to a final index of 14. The investment outlook is the second highest since December quarter 2010 and is now nine points above the 10- year average index of 5. Thirty per cent expect an increase and 16 per cent a decrease in capital investment compared with a year earlier. For September quarter 2012 the final index for actual investment is minus 5, down 13 points from the previous quarter. Twenty per cent of firms had more capital investment and 25 per cent had less than in September quarter 2011. D&B National Business Expectations Survey – December 2012 Results 9 Inventory Outlook (Quarterly Net Index) (Down 8 to 16) The positive and negative components of the D&B net indexes are shown in the adjacent chart. The final outlook for growth in inventories in March quarter 2013 is for an index of 16, down eight points on the December quarter. The latest index the second highest in nine years and is now 13 points above the 10-year average index of 3. Thirty one per cent expect to increase and 15 per cent to decrease inventories in March quarter compared with a year earlier. The final index of the net proportion of firms with actual increases in inventories for September quarter 2012 is 19, up 8 points on the index for the previous quarter. This is now the highest actual index since March quarter 2003. Thirty four per cent had an increase in inventories and 15 per cent a decrease compared with September quarter 2011. D&B National Business Expectations Survey – December 2012 Results 10 Selling Prices Outlook (Quarterly Net Index) (Down 9 to 3) The positive and negative components of the D&B net indexes are shown in the adjacent chart. The final selling prices outlook for March quarter 2013 is down nine points to a net index of 3. This fall puts the index at the lowest recorded since the survey began in 1988. It is now 26 points below the 10-year average index of 29. The proportion of firms expecting to have higher selling prices in March quarter 2013 than a year earlier is 18 per cent with 15 per cent expecting to have lower prices. At nine, the final actual prices index for September quarter 2012 is a rise of six points from the previous quarter. Twenty four per cent had increased and 15 per cent had decreased prices compared with September quarter 2011. . PRICE OUTLOOK DROPS TO LOWEST POINT IN 24 YEARS Australian businesses are looking to negotiate a post-Christmas spending slump through continued. Inventories expectations are following this trend, with the index retreating from 24, to 16; an indication that businesses are looking to hold less stock in