Business ready to invest again, but hiring intentions still low: Survey

A new survey shows capital investment expectations among small and medium-sized business owners have hit their highest level in two-and-a-half years, indicating business will enter 2009 with a growing sense of optimism.

The survey, conducted by Dun & Bradstreet, shows 12% of firms are expecting to increase capital investment in the next quarter, with durables manufacturers the most upbeat about investment. The capital investment expectations index has now climbed for two straight months to its highest point since 2007, when Australia’s economy was booming.

Dun & Bradstreet’s CEO Christine Christian says that while the increased optimism around capital investment has come off a very low base, it is still an important sign for the recovery.

“Investment in business infrastructure is vital to promoting long-run economic growth through improvements in productivity and productive capacity. With inflation as a concern when there is not enough productive capacity to meet demand an increase in capital investment will play a critical role in reaching a modest level of inflation for an economic recovery,” she says.

“If businesses can manage the balancing act of improving sales and profits through the principles of good cashflow management, while at the same time investing in their business to improve productivity, this bodes well for the Australian business outlook in the first quarter of 2010.”

While the survey also shows gains in the sales and profit expectations, it is clear that labour force management remains a challenge.

Wages growth has replaced interest rates as the factor that executives believe will have the biggest influence on the business in the next three months. In the most disappointing result from the survey, just 6% of firms are planning to increase staff while 7% are expecting to cut staff.

While hiring intentions are improving slowly, Christian says this number will need to jump considerably if the Government’s unemployment target of 6.75% (recently revised down from 8.5%) is to be met.