D&B Indexes

Price outlook drops to lowest point in 24 years

AUSTRALIAN businesses are looking to negotiate a post-Christmas spending slump through continued discounting, with the outlook for selling prices during the first quarter of this year falling to a historic low.

The latest data from Dun & Bradstreet's National Business Expectations Survey shows the selling price expectation index dropping to three points - its lowest level since the data was first analysed by D&B in 1988, and 26 points below the 10-year average index.

Actual selling prices have now tracked below the expectations of business executives for 10 consecutive quarters, suggesting their businesses are facing an ongoing demand for discounts by their customers.   

D&B Indexes

In tandem with lower selling prices, businesses are anticipating reduced activity; with expectations for both their sales and inventory levels pulling back sharply from the previous quarter's expectations.

The D&B sales expectations index has dropped 14 points from a relative high in the previous quarter, to 19. These lower expectations are matched by survey findings that more than 57 per cent of businesses have identified 'demand for their products' as the main barrier to growing their business in the year ahead.

Inventories expectations are following this trend, with the index retreating from 24, to 16; an indication that businesses are looking to hold less stock in anticipation of sluggish spending activity.

The selling prices, sales and inventories data reflect a continued sense that consumers and businesses will remain cautious about how they spend their money in 2013.

According to Dun & Bradstreet's Director of Corporate Affairs, Danielle Woods, businesses are continuing to focus on discounting to encourage spending.

"We know that there is traditionally a drop off in spending following the Christmas period as consumers play catch-up with their household budgets and debts following an often expensive holiday period," she said.

"These findings suggest that businesses are planning to negotiate the spending slump by extending discounting through the New Year and by managing their stock carefully.

"Although the most recent data has taken selling price expectations to a new low, it is part of a long downward trend that suggests ongoing discounting has become the new normal," said Ms Woods.

Profit expectation is the only D&B indicator to increase, moving upwards for the second consecutive quarter to an index of 23, and suggesting that Australian businesses are optimistic that their adjustments to selling prices and expenses will pay off.

The latest outlook for capital investment has fallen away marginally from 15 to an index of 14; reflecting a correction in expectations following a significant drop in the actual capital investment index for the September 2012 quarter to minus five.

In a nod to the broader economic outlook, employment expectations remain flat, with the D&B index sitting at the 10-year expected index average of one for the second consecutive quarter.  The actual employment result also remains negative, with the D&B index at minus 2.

Stephen Koukoulas, Dun & Bradstreet's Economic Advisor, highlighted the fall in selling prices as a reason why the RBA is on track to cut interest rates early in 2013.

"The sharp fall in expected selling prices points to very low inflation outcomes for both the December and March quarters," he said.

"Consequently, it remains likely that the inflation rate will remain near the bottom of the RBA target band, which will be a critical issue for the RBA when it decides future interest rate settings.

"The Business Expectations Survey also shows softer activity, with sales weakening and employment conditions remaining flat. The economy is clearly in a temporary lull with the key question as we move into 2013: is monetary policy sufficiently easing to spark stronger activity through the year?" Mr Koukoulas added.