Profit expectations hit seven-year high, but weak business conditions suggest recovery is “on hold”

Profit expectation at Australian firms have hit a seven-year high, despite a new survey of business conditions suggesting profitability and trading conditions are weak.

The two separate surveys of business conditions and confidence suggests the environment for SMEs remains extremely patchy and difficult to read.

Dun & Bradstreet’s business expectations survey showed profit expectations for the March quarter of 2011 have hit seven-year highs, while sales expectations have hit their highest point since December 2003.

While employment and capital investment expectations remain relatively subdued, D&B says businesses expect the momentum generated by a strong Christmas trading period should carry into 2011.

There is even a strong indication that the discounting that has plagued many sectors could be starting to fade – 29% of firms expect to increase selling prices in the March quarter of 2011, while 11% of firms expect to lower prices.

D&B’s research into the September quarter reinforces this trend, with 22% of firms reporting they increased prices.

But while the D&B survey paints a rosy picture of the outlook for early 2011, a separate survey of business conditions and confidence produced by NAB is much more restrained.

NAB’s survey shows that while business confidence remains just above long-term average levels, business conditions tumbled in October, dragged down by concerns about the outlook for profits and trading conditions.

According to NAB’s chief economist Alan Oster, business conditions are simply not recovering with the speed that most executives had predicted earlier in the year.

“The nascent recovery evident in the September survey has been put on hold for the moment,” he said.

“Forward orders fell back and have now been negative in four of the past six months. Capacity utilisation continued to trend down, although stocks were higher.”

Oster says conditions continue to be patchy across different sectors of the economy and in some industries, such as construction, conditions have been particularly volatile. Conditions in October were strongest in mining and transport and utilities, and weakest in retail and construction.