Small business confidence slows as economy fails to fire
Business confidence in Queensland has slowed as the economy failed to fire following “business-friendly” State and Federal Budgets and in the aftermath of the Federal Election.
The Suncorp CCIQ Pulse Survey of Business Conditions for the June Quarter revealed flat sales, rising operational costs and eroded profitability for many businesses, which presented challenges to increase employment and investment.
However, the survey of almost 600 businesses across Queensland forecasts improved customer spending and a better bottom line for businesses in the second half of 2016, with the low Australian dollar and interest rates benefitting some industry sectors.
CCIQ Director of Advocacy Nick Behrens said this is providing some confidence that sales and customer spending will strengthen in Queensland across the next quarter.
“The Pulse Survey results indicate that the State and Federal Budgets have failed to ignite business confidence. However, the silver lining is that expectations for the September Quarter are more positive,” he said.
“While there is optimism in the business community surrounding the return of the Turnbull Government, there are also concerns relating to the ability of the Coalition to govern effectively with a small majority and a challenging Senate composition.”
Mr Behrens said in spite of these concerns, confidence in the national economy increased in the June Quarter to an index level of 50.5 – slightly above the five-year average – and suggested the economic outlook for Australia was strengthening.
“Conversely, business confidence in the Queensland economy fell in the same period and is below the level that was recorded in the June Quarter last year,” he said.
“The 12-month outlook is now 7.2 percentage points below the five-year average in seasonally adjusted terms.”
Mr Behrens said the Suncorp CCIQ Pulse Survey continued to highlight the challenging conditions confronting businesses across Queensland, with weak sales growth, coupled with rising operational costs, impacting profitability.
“With poor profitability, business capacity to provide jobs and invest remains considerably impaired,” he said.
“Forecast figures indicate that Queensland businesses believe conditions will strengthen in coming months, with customer spending expected to improve, especially within South East Queensland.
“There is now an expectation that customer spending will return now that the Federal Election has concluded.
“The lower Australian dollar, which has been trading at an average of 72.7c for the past year, continues to deliver competitive benefits to exporters and tourism operators in particular.
“But state-based issues continue to restrain confidence in the Queensland economy.
“Businesses indicate political uncertainty, indecisiveness and inaction – specifically with the management of the Queensland economy – are key factors in determining business confidence and the willingness of customers to spend.”
Suncorp Group Economist Steven Milch said it was pleasing to see Queensland businesses were likely to be more confident in the next quarter.
“We appreciate the June Quarter provided an unsettling environment for small business, but there are certainly opportunities ahead,” Mr Milch said.
“The outlook for the agricultural sector has improved, commodity prices have lifted and tourism is benefiting from the low Australian dollar. Each of these are key sectors for the Queensland economy.
“We remain committed to working with organisations like CCIQ to help support the strength and sustainability of the business sector.”
SUNCORP CCIQ PULSE SURVEY OF BUSINESS CONDITIONS SUMMARY
12 Month Outlook
• Queensland Economy Index declined by 0.8 percentage points in the June Quarter to 42.6. The Queensland Outlook index is 1.7 percentage points lower in June 2016 compared with June 2015.
• Australian Economy Index rose by 0.5 percentage points in the June Quarter to 50.5. The Australian Outlook index is now slightly above the long run (five-year) average of 50.4.
• Negative influences on the 12-month outlook include: customer confidence and spending; Federal Election; operating costs (electricity, insurance); State Government political uncertainty and indecisiveness; and market competition
• Positive influences include: strength of exports and tourism; favourable weather; investment and innovation projects; and interest rates.
Business Performance and Expectations
• The Pulse General Business Conditions Index fell by 1.9 percentage points in the June Quarter to 42.4. The proportion of businesses reporting that general business conditions are strengthening has almost halved in the past 12 months. Conditions should improve in the September Quarter with an index level of 46.2.
• The Pulse Sales and Revenue Index fell by 0.8 percentage points in the June Quarter to 50.2. Uncertainty from the Federal Election was cited as being a significant impact on spending. The Index is forecast to rise to an index level of 54.5 in the September Quarter.
• The Pulse Labour Costs Index fell by 0.6 percentage points in the June Quarter to 56.5 with a similar level anticipated in the September Quarter.
• The Pulse Profitability Index fell by 0.7 percentage points in the June Quarter to 42.4. Almost half of all businesses indicated that their profitability declined in the period with soft trading conditions, driven by cautious spending. The Index is forecast to rise in the September Quarter to 47.2.
• The Pulse Employment Levels Index fell by 0.6 percentage points to 47.1 in the June Quarter. Businesses are continuing to consolidate existing employment levels, which is expected to continue in the September Quarter.
• The Pulse Capital Expenditure Index fell by 2.0 percentage points to 47.4 in the June Quarter with the index expected to decline by a further 0.9 percentage points during the September Quarter.
Regional Business Confidence
• Businesses operating in SEQ are enjoying more favourable business conditions than regional Queensland, with forecasts indicating that this will continue into the September Quarter.
Major Constraints on Business Growth
• The major constraint to business growth across the June Quarter was the uncertainty and instability generated by the Federal Election, which replaced the level of demand and economic activity as the main barrier to business growth across Queensland.
• Significantly, this is the first time in three years that level of demand and economic activity has been replaced as the number one constraint on Queensland businesses. This highlights how disruptive the political climate, at both a state and federal level, has become in terms of its impact on the performance and growth of small business.
The survey was conducted from July 11-24