Small business confidence trails improving local economy

Friday 28 October, 2016 | By: Darrell Giles | Tags: business confidence, Pulse survey, Suncorp, economic update

Recent data, including CCIQ’s Queensland Economic Update, has suggested the State economy is improving – but it appears business confidence is yet to catch the same wave.

The latest Suncorp CCIQ Pulse Survey of Business Conditions for the September Quarter indicates confidence in the state and national economies remains on a downward trend.

CCIQ Director of Advocacy Nick Behrens said sentiment was weakening in the 12-month outlook for both the Queensland and Australian economies.

Download the latest report - September 2016

“Nationally, the 12-month outlook fell by 1.6 percentage points to 48.8 for the September Quarter. This places the index below both the neutral level (50.0), and the five-year average (49.3),” Mr Behrens said.

“Business confidence in the Queensland economy also fell and at 41.4 it is now at its lowest level since the March Quarter 2015. The 12-month outlook is now 8.0 percentage points below the five-year average (49.4).”

Mr Behrens said despite the fall in sentiment, the more than 300 small businesses surveyed recorded an increase in general business conditions, as well as sales and revenue.

“This suggests that while overall confidence in the economy remains low, businesses are reporting that increased levels of activity are returning to Queensland,” he said.

“A number of recent indicators have highlighted improvement in the Queensland economy, but it appears this is yet to filter through to strengthening business confidence. The Pulse Survey indicates ongoing caution across many small businesses.

“One of major points to be drawn from the Pulse Survey is the divergence between business confidence and actual business performance – it’s an intriguing result.

“Collectively, Queensland businesses are less confident about the State’s economic prospects – yet individually businesses are reporting solid trading conditions and increased sales.

Mr Behrens said this raised questions as to why.

“While the conclusion of the Federal Election has delivered some certainty to the business community, the slim majority of the Turnbull Government and the Senate has generated concern among small business owners about the ability of the Coalition to govern effectively,” he said.

“Many believe there is a lack of vision and direction for Australia and this is influencing overall confidence at a national level.

“These concerns, combined with uncertainty surrounding global markets and the US Presidential Election on November 8, are driving a weakened sentiment.

“The competitiveness of the Australian dollar and low interest rates continue to deliver benefits to a number of industry sectors.

“While this is favourable for the Queensland economy, there are a number of other issues restraining confidence in the State economy.”

Suncorp Chief Economist Steven Milch said while the gap between business confidence and economic activity remains, there are a number of indicators that should provide optimism.

“Commodity prices have risen, especially coal, providing the first lift in Australia’s Terms of Trade in 10 quarters, which is positive for incomes and profits,” Mr Milch said.

“Further, there has been a decline in Queensland’s unemployment rate in recent months – a development we expect to continue.’’

Mr Behrens said small businesses continued to be apprehensive about the Queensland economy across the next 12 months.

“State Government inaction and leadership issues continue to feature prominently among qualitative comments received from businesses,” he said.

“In summary, the September Quarter results are not about where we are at but where we are trending.

“CCIQ’s sense is that the general direction from these results is one of improvement. The question remains: will this lift confidence?”

Mr Behrens said it would be fascinating to see if business confidence lifted as the State economy continued to improve and particularly on the back of expected better Christmas retail sales.

Pulse Results for September Quarter

•           The Queensland Economic Index declined by 1.1 points to 41.4, which is 8.0 percentage points below the five-year average (49.4).

•           The Australian Economic Index fell by 0.6 points to 48 and is below the five-year average (50.5) but 7.3 percentage points above the Queensland outlook.

•           Negative influencers on the 12-month outlook for the Queensland economy include global economy and politics; State Government inaction; Federal Government; lack of investment and infrastructure, and resource sector weakness.

•           Positive influencers on the 12-month outlook for the Queensland economy include strength of exports and resource prices; lower Australian dollar; property and construction; interest rates and investment and innovation projects

•           General business conditions rose by 0.6 index points to 43.0 and should further improve in the December Quarter (46.9).

•           Sales and revenue rose by 0.5 index points to 50.7 and represents three straight quarters of strengthening performance. The index is now 2.1 index points above the five-year average and is set for further improvement, rising to 54.2 in the December Quarter.

•           Profitability fell by 0.5 index points to 42.0, above the five-year average (41.5); and combined with strengthening sales and revenue results is forecast to improve in the December Quarter (46.8).

•           Employment levels were unchanged at 47.1, consistent with the relative no change in the past 12 months. While remaining above the five-year average (45.6), the December Quarter indicates no change in employment levels.

•           Capital expenditure fell by 1.7 index points to 45.7 and is expected to decline by a further 0.7 index points in the December Quarter. Despite these declines the index remains 2.6 percentage points above the five-year average (43.1).

•           Regional analysis highlights that economic conditions are being experienced disproportionately across Queensland, with the South-East recording stronger results relative to regional Queensland.


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