Businesses remain upbeat about the economic outlook, with the business expectations at a 15 year high. While the results are somewhat at odds with the more cautious – and even problematic outlook in the economy more broadly – expectations are over 10 per cent above the level of a year earlier.
Expectations for profits have strengthened to a new cyclical high, a trend which fits with the recent positive reporting season for ASX companies and the resulting lift in the ASX200 stock price index. Profits are likely to have benefits from well contained cost pressures with wages growth (a cost to business) and record low interest rates feeding into a positive profit margin.
Capital investment expectations continue to pick up. Expected capital expenditure into the June quarter is at a four year high. This fits with the recent official data on business investment, which showed an upbeat outlook into 2019-20.
One conundrum in the illion Business Expectations survey is the strong rise in expected selling prices. At a time when inflation is low and stable, the expectation of rising selling prices is difficult to reconcile. It may be linked to rising food prices associated with the drought, or it may reflect the weaker Australian dollar over the past year, which has boosted the price of imported items. Selling prices, which translate to inflation, will be closely watched in the months ahead and will be a key issue for the Reserve Bank when it considers interest rate settings.
Overall, the survey presents a positive outlook for the economy through to the middle of 2019.
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Each month, illion asks a sample of executives if they expect an increase, decrease or no change in their quarter-ahead sales, profits, employees, capital investment 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 analysis from illion's monthly Business Expectations Survey provides a leading indicator of sentiment across the business landscape to help you plan for economic trends. To read the full analysis from March quarter download the report.