Profit expectations hit six-year high, but wages pressures a worry for executives

Australian executives are banking on a huge end to 2011, with the latest Dun & Bradstreet business expectations survey showing profit expectations are at six-year high.

However, rising wages and looming skills shortages are becoming a major stumbling block for growth, with 32% of firms saying wages would be the primary influence on operations in the December quarter.

While the D&B confidence index has been steadily rising for most of 2010, business are clearly now bullish about growth.

The index tracking sales expectations for the December quarter soared 16 points to 40 points, while profit expectations leapt 14 points to 26 points, the highest level in six years. An impressive 49% of firms expect sales to increase in the December quarter.

In news that will cheer business-to-business companies, the capital investment index has also climbed to its highest point in seven years.

Selling prices and employment expectations have also increased markedly, as employers look to boost their resources ahead of a big 2011.

D&B chief Christine Christian says the strong improvement in business confidence over the last 18 months is now starting to translate into dollars in the till.

“Executives are now expecting to deliver solid sales and profits growth in the December quarter – they are also anticipating a need to take on new staff and displaying an appetite to invest in their operations. All of these factors bode well for our economy and indicate we will continue to deliver healthy growth in the second half of 2010.

She does however sound one note of warning – much of the strength is being driven by expectations of a bumper Christmas trading period.

“Although solid December quarter results will undoubtedly assist GDP figures for 2010, growth in these key areas must continue into the New Year if we are to prove resilient to the economic factors impacting other developed nations.”

One result from the survey that will worry the Reserve Bank of Australia as it seeks to keep inflation under control is growing signs of wages pressure.

A total of 32% of firms consider wages growth to be the major influence on their business in the following three months, while 28% rank interest rates as their big worry.

Happily, the impact of tighter lending conditions appears to be easing, with just 7% of executives reporting decreased access to credit in the last quarter.