Future Business Index Highlights Challenges for NFP Sector
Thursday, 20th October 2011 at 2:48 pm
This article is part of a regular series of articles by the Commonwealth Bank, who will be using their financial experts to provide news, insight and expert advice for Not for Profit organisations.
A study of companies in mid-market corporate Australia identifies how firms are adapting to the challenges and preparing themselves for future uncertainty and Not for Profit should also be prepared for these challenges, according to the Commonwealth Bank.
The results of the study are published in the inaugural CBA Future Business Index.
The Commonwealth Bank Future Business Index highlights the mixed conditions affecting Australia’s economy. On the whole, the index paints a picture of a downbeat outlook overall for the next six months. The Future Business Index reading was -0.3, with firms expecting weaker business conditions, and lack of preparation for such deterioration the key drivers of the negative outcome. Sales outlooks were firm, with a net 23% of firms expecting higher revenues over the next 6 months.
The picture is not uniform across the economy. There are extreme divergences between industries, and also across regions. The strongest industries are those linked to the major long running trends in the economy – health, education and of course, the mining boom. The ageing of the population provides a strong support for the health sector, and the lift in births in the second half of the 2000s is beginning to boost school enrolments.
The Commonwealth Bank’s economic analyst, James McIntyre says this is good news for the thousands of Not for Profits operating in these sectors. Construction and mining firms are also stronger, reflecting the boom in commodity prices and construction of new mining projects.
Those industries on the other side of the structural change coin – retailing and manufacturing – were among the sectors with very weak outlooks.
Regionally, WA and Queensland firms were optimistic in their sales outlooks.
McIntyre says surprisingly, the Index for SA and NT was strong, with the most optimistic outlooks for sales and business conditions. Firms in the regions on the other side of the two speed economy – NSW / ACT, VIC / TAS – were downbeat.
The outlook for the US economy was the major international uncertainty firms were concerned about over the next six months. In contrast to financial markets, firms were more concerned about a slowdown in Asia, and China specifically, than the European sovereign debt crisis.
The study found that companies aren’t standing still and ignoring the potential risks. Some 43% of firms stated they were well prepared to handle fluctuations in business conditions over the next six months, with 26% of firms stating that their strong financial position was key to their preparedness.
Many of the issues highlighted by the Future Business Index are highly relevant for the Not for Profit sector.
For example, the majority of companies expected salary and wage costs to increase over the next six months, with companies in the mining and business services sectors the most likely to expect increases in salaries, and employment.
The major domestic risks impacting business conditions over the next six months were rising energy and fuel costs, followed by increases in wages. And around 40% of companies in Queensland and Western Australia cited the ongoing impact of natural disasters in Australia as a factor affecting conditions in their industry.
McIntyre says these factors are also likely to be affecting the Not for Profit sector, particularly given the constraints the sector has in matching increases in salaries with fast growing private sector industries such as mining and the capacity for Not for Profits to absorb increases in operating costs.
Keep up-to-date with all the latest NFP Finance News from the Commonwealth Bank at probonoaustralia.com.au/news/commonwealthfinance
Disclaimer: Important Disclosures and analyst certifications regarding subject companies are in the Disclosure and Disclaimer Appendix of this document andatwww.research.commbank.com.au. This report is published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.