According to a preliminary survey conducted by illion in January 2019, the Business Expectations Index surged more than five points to 26.2 points to reach its highest level since 2003, while the Actuals index increased to 18.7 points, representing a significant turnaround following the previous quarter’s bleak outlook.
Illion’s economic advisor, Stephen Koukoulas noted that the profit expectations index jumped to 31.4 points, up seven points on the March quarter and 14.1% higher than the same time last year. The actual profits index followed a similar trajectory, hitting a near-10-year high of 23 points, representing a 15% year-on-year (YoY) increase. The surge in the profit indices may be linked to the more competitive level of the Australian dollar, ongoing low interest rates and expected increases in selling prices.
The sharp increase in employment expectations – which rose to 24.5 points (up 37.5% YoY), a figure not seen in almost two decades – appears to reflect evidence of skills shortages in some sectors, as well as rising demand in the current climate of low wages growth. If these expectations are met with an actual acceleration in employment growth over the next quarter, the unemployment rate could resume its decline.
Business optimism is also picking up, with 70.2% of businesses surveyed in January more optimistic about growth prospects over 2019, compared with only 61.3% in the December survey. The biggest improvements came from the manufacturing and construction sectors. This optimism may have been a factor behind the growing concern about rising interest rates, with 8.1% of businesses stating interest rates would likely have the most influence on their operations over 2019, compared with only 4.9% in the December survey and 5.6% in November.
The selling prices expectations index has increased 1.6 points to 25.4 points, a move which could hint at some near-term upside risk to inflation. However, the modest pick-up in the index suggests any actual inflation rate increase is likely to be moderate at best.
After a period of relative stability, expected capital investment has picked up, with the index reaching 16 points, up 35.2% from the previous quarter and 22.9% up on the year-earlier period. Official ABS data on business investment has been sluggish, although this data is based on Q3 2018, whereas the illion data is focused on expectations for Q2 2019.