With the new year dawning, it’s the perfect time to reflect on business conditions for the year ahead.
CommSec Senior Economist Ryan Felsman told Kochie’s Business Builders (KBB) there’s plenty of room for optimism with small businesses performing exceptionally well in the last quarter.
“Small businesses have performed very well actually. Westpac Melbourne Institute compiles a quarterly survey and they examine the health of these businesses; and the latest survey says that sentiment is positive going into 2018.”
Felsman says the report’s findings are supported by improved conditions especially for sales and profit with an upturn reflected across a range of areas including professional services, construction and infrastructure.
The biggest gains were in Professional, scientific and technical services (up 14.6 per cent), Financial and insurance services (up 12.4 per cent) and Information media and telecommunications (up 12.2 per cent).
According to Felsman, this spells good news for small businesses who should also be encouraged by a rise in consumer spending, with the December figures revealing consumer confidence is at a four year high.
“What we are seeing is consumers are responding to interest rates remaining at an all-time low. At least for the next year,” Felsman says.
The senior economist is optimistic that wage growth, which has been illusive to date, will soon follow on from these indicators
Felsman suggests the unemployment rate which has dropped to a five-year-low at 5.4 per cent is also a contributing factor. Add to this 14 consecutive months of job growth and the leading indicators paint a very positive picture for the economy.
The senior economist is optimistic that wage growth, which has been illusive to date, will soon follow on from these indicators,
“There is a bit of a disconnect between job and wage growth as there ae some disrupters that are puzzling for banks globally.”
Small businesses should also be buoyed by the results from our biggest trading partner, China.
“We just got the November activity read and retail sales are double digit and there is elevated infrastructure spending.”
Whilst Felsman concedes some businesses may be doing it tough there is every reason to be positive for 2018 with no major disruptions predicted in the coming months.
“It’s steady as she goes,” he says.
- Company operating profits fell by 0.2 per cent in the September quarter after falling 3.3 per cent in the June quarter and rising almost 36 per cent in the previous year. Profits were up 20 per cent on the year.
- Profits fell in just six of the 15 industry groups in the September quarter. Profits fell most in “Other Services” (down 12.4 per cent) and Rental, hiring and real estate services (down 9.2 per cent). The biggest gains were in Professional, scientific and technical services (up 14.6 per cent), Financial and insurance services (up 12.4 per cent) and Information media and telecommunications (up 12.2 per cent).
- In rolling annual terms, mining operating profits rose by 66.2 per cent for the year to September to a record high of $100.85 billion. Non-mining profits rose by 13.0 per cent over the year to a record $209.7 billion.
- In current prices, sales rose in six of the states and territories in the September quarter: NSW (up 0.5 per cent), Victoria (down 0.2 per cent), Queensland (up 3.0 per cent), South Australia (down 0.2 per cent), Western Australia (up 1.4 per cent), Tasmania (up 3.9 per cent); Northern Territory (up 1.4 per cent) and ACT (up 7.7 per cent).
- Wages & salaries rose by 1.1 per cent in the September quarter after a 1.7 per cent gain in the June quarter to be up 2.5 per cent over the year.
- Job advertisements rose for the fifth time in six months, up by 1.5 per cent in November to 172,395 ads – a 6-year high (highest since July 2011). Job ads are up 12.1 per cent on a year
The Year Ahead
- The Australian economy remains in good shape. Home building remains solid in most states and territories. Certainly more new homes will be finished over the next year, and this will keep investors and authorities alike focussed on the type of landing experienced: ‘hard’ or ‘soft’.
- The business sector is in great shape, with conditions reportedly the best in 20 years. Businesses are spending, investing and employing and the jobless rate is gradually edging lower. The jobless rate is at 4½-year lows.
- Federal and state governments continue to unveil infrastructure spending – especially transport. That is, roads, tunnels, railways and airports. And work on current and mooted projects will support the economy in the next few years.
- Economic growth is expected to lift from around 2 per cent to near 3 per cent over 2018. Contributions to growth are expected to be broad based with consumers, businesses, exports and governments expected to contribute to the firmer growth pace.
- The Australian dollar could move either way over 2018. And much depends on what happens in the US. If the US administration is successful in legislating tax cuts, and they aren’t overtly staggered over coming years, global investment dollars may flow to the US. But at time of writing, the tax legislation still needs to pass the Senate. And then there is the question of US monetary policy if inflation stays stubbornly low.