Trading conditions weaken, confidence on rise

By: Graham Gardiner

While business conditions, sales and profitability deteriorated over the June quarter, expectations in most categories are showing signs of improvement. The

While business conditions, sales and profitability deteriorated over the June quarter, expectations in most categories are showing signs of improvement.

The July 2009 Australian Chamber of Commerce and Industry (ACCI) Survey of Investor Confidence offers a mixed-bag of predictions for the coming year.

In interpreting the results, an index level below 50 indicates conditions are deteriorating, while a reading above this mark points to improvement.

Within the ‘own business conditions’ category, current conditions fell from 52.1 in the March quarter to 51.3 in the June quarter, marking a historic low since the survey began in 1998.

However, expected business conditions improved over the quarter, jumping from 51.8 to 54.5.

ACCI Acting Chief Executive Greg Evans says the survey shows a promising improvement in trade conditions.

"However, these indicators are still significantly below their five year averages with most respondents expecting no change, neither deterioration nor improvement, in business conditions," he says.

Current sales decreased marginally from 49.5 to 49.2, while expected sales rose to 53.2, its highest level since December 2008.

The index of current profitability fell from 46.6 to 45.9, yet expected profitability experienced a sharp turnaround, surging from 47 to 50.1.

This indicates that businesses expect their profitability to increase over the next three months.

The decline of expected level of activity slowed marginally from the previous quarter’s expectations, with the index rising from 46.4 to 47.4.

This indicates that while activity remains weak, businesses are expecting a small improvement over the next six months.

Meanwhile, expected investment increased from 36.3 to 39.6 over the June quarter, showing that businesses are anticipating the fall in investment will be much lower than current rates of decline over the next six months.

According to the survey, the top-10 constraints on investment include:
  1. Taxes and government charges
  2. Insufficient demand
  3. Non-wage labour costs
  4. Wage costs
  5. State government regulations
  6. Insufficient retained earnings
  7. Raising loans from financial institutions
  8. Federal government regulations
  9. Local competition
  10. Charges by lending institutions.

The expected number of full-time employees increased slightly over the period, rising from 44.9 to 45.6.

This reading suggests over the next six months, while hiring intentions will improve marginally, business expects full-time employment conditions to remain weak.

Expected capacity in relation to demand fell marginally from 61.9 to 61.6, indicating that excess capacity within the business to increase output over the next two quarters has declined marginally.

The index is more than seven points above the level of additional capacity recorded a year earlier.

Sales over the June quarter fell significantly short of projections, with the index of actual sales compared with the level expected six months ago recorded at 39.

The index of national economic conditions - current, which measures business’ evaluation of the general state of the national economy, declined further to 41.8. This marks the lowest level in the survey’s 11-year history and almost 19 points below its five year average of 60.5.

The negative reading indicates that trading conditions continued to deteriorate over the quarter

Notwithstanding current economic conditions, businesses are expecting an improvement in national economic conditions over the next three months.

The index for expected national economic conditions bounced 6.8 points to 44.5 in the June quarter.

ACCI’s statistics are gathered through a national survey of 1,134 respondents from the industry’s member associations, covering the three months to June.

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