The illion Business Expectations Index has improved significantly over the first month of 2019, representing a major turnaround following last quarter’s bleak outlook.
According to the preliminary survey, conducted over January 2019, the Expectations index surged more than five points to 26.2 points, reaching its highest level since 2003, while the Actuals index increased to 18.7 points.
Employment and Profits Expectations drive bullish outlook for June 2019 Quarter
The profit expectations index jumped to 31.4 points, up seven points on the March quarter and 14.1% higher than the same time last year. The actual profits index followed a similar trajectory, hitting a near-ten-year high of 23 points, representing a 15% year-on-year increase. The surge in the profit indices may be linked to the more competitive level of the Australian dollar, ongoing low interest rates and expected increases in selling prices.
The sharp increase in employment expectations – which rose to 24.5 points (up 37.5% YoY), a figure not seen in almost two decades – appears to reflect evidence of skills shortages in some sectors, as well as rising demand in the current climate of low wages growth. If these expectations are met with an actual acceleration in employment growth over the next quarter, the unemployment rate could resume its decline.
Employment and Profits Actuals, December 2018 Quarter
Business optimism is also picking up, with 70.2% of businesses surveyed in January more optimistic about growth prospects over 2019, compared with only 61.3% in the December survey. The biggest improvements came from the manufacturing and construction sectors. This optimism may have been a factor behind the growing concern about rising interest rates, with 8.1% of businesses stating interest rates would likely have the most influence on their operations over 2019, compared with only 4.9% in the December survey and 5.6% in November.
Are you more optimistic or less optimistic about growing your business in 2019 compared to last year?
The selling prices expectations index has increased 1.6 points to 25.4 points, a move which could hint at some near-term upside risk to inflation. However, the modest pick-up in the index suggests any actual inflation rate increase is likely to be moderate at best.
After a period of relative stability, expected capital investment has picked up, with the index reaching 16 points, up 35.2% from the previous quarter and an increase of 22.9% compared with the year-earlier period. Official ABS data on business investment has been sluggish, although it should be noted the official data is only for the September 2018 quarter, while the illion data is focused on expectations for the June 2019 quarter.
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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 last quarter download the report.