Australian firms recorded a dramatic lift in expectations for the June quarter, with the outlook for sales hitting its highest level in almost a decade.

The latest Dun & Bradstreet National Business Expectations Survey of manufacturing, retail and wholesale firms conducted in January, revealed preliminary expectations for June quarter sales (+21) and profits (+8) were more than twice March quarter forecasts.

Sales expectations are now at their strongest level since the December quarter 2003, well before the onset of the global financial crisis.

Dun & Bradstreet CEO, Christine Christian, said the strong sentiment was encouraging and corresponded with D&B trade payments and collections data which indicated that business performance tended to experience a cyclical peak during the second quarter of the year.

"Historically, leading indicators of financial stability, such as cash flow, have improved during the June quarter as firms gain momentum. We are also no doubt seeing businesses increasingly factoring in the impact of further interest rate reductions on their operations," Ms Christian said.

This improvement has not, however, translated into plans for long-term employment growth, with businesses recording a three point drop in employment expectations for the June quarter.

"This would appear to indicate that businesses are still taking a cautious, wait-and-see approach on trading conditions before looking to expand their operations or their workforce."

The drop in June quarter employment expectations follows an actual December quarter employment result of -1, a drop of six index points since the September 2011 quarter.

The D&B Business Expectations Survey shows that for the June 2012 quarter:

• Sales Expectations have climbed above the previous high point for December quarter 2010 and are now 25 points above the ten-year average index;
• Profit Expectations continue to recover from the first negative index in two years and are now 14 points above the ten-year average index;
• Employment Expectations have dipped by three points and are only two points above the ten-year average index; and
• Investment Expectations have reached a plateau and are seven points below the previous peak in December quarter 2010.

"Despite the general improvement in business expectations some caution was still evident through measures of credit growth across a majority of sectors," Ms Christian said.

Nearly one-third (31%) of businesses reported that they planned to increase cash reserves during the June quarter, up seven percentage points since December. Two-thirds of firms also reported that they planned to avoid new lines of credit. This aligns with recent RBA figures showing business lending growth of just 0.3 per cent in December.

Expected Sales, Profits, Employment, Inventories and Capital Investment Indices

Manufacturing firms were the driving force behind the surge in sales optimism. Wholesalers, however, recorded the only fall in second quarter expectations, with projected profits dropping eight points to an index of just five.

The results come off the back of stronger than expected sales and profit performance during the December quarter across most sectors. Firms finished 2011 with an actual final quarter sales result up eight index points and final quarter profits up 10 points.

Despite swelling confidence, the number of businesses welcoming the high Australian dollar has dropped from 45 per cent in January 2011 to 38 per cent in January 2012. Not surprisingly, concern over the high Aussie dollar has risen from 11 to 27 per cent year on year.

According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the latest D&B National Business Expectations Survey indicates a possible link between poor expectations from wholesale firms and concern over online selling.

"All wholesale expectations indexes are lower in the second quarter than the first. Wholesale trade was the only sector to expect a decline in employment in the second quarter," said Dr Ironmonger.

"Concurrently, 53 per cent of wholesale executives expect online internet selling by their competitors will have an adverse effect on their business in the year ahead. This compares with 50 percent for retailers, 42 per cent for non-durables manufacturers and only 21 per cent for durables manufacturers."

Detailed results for the Dun & Bradstreet Business Expectations Survey are below.

Outlook for the June quarter 2012

• Sales expectations are up 21 points to an index of 37, three points above the previous peak in December quarter 2010 and 25 points above the 10-year average index of 12;
• An increase of 11 points has taken the profits expectations index to 19, now 14 points above the 10-year average index;
• Employment expectations are down three points to an index of 4, now only two points above the 10-year average index of 2;
• The inventories index is up one point to an index of 9, seven points above the 10-year average index of 2;
• Capital investment expectations are unchanged at an index of 10, maintaining a rise from the previous three quarters and now five points above the average index (5) of the last 10 years;
• The selling prices index is up eight points to 22, just eight points below the 10-year average of 30.
  Issues expected to influence operations in the June quarter 2012

Issues expected to influence operations in the June quarter 2012

• 25 per cent of executives rank interest rates as the primary influence on their business;
• 24 per cent of firms expect wages growth to be the primary influence on operations;
• 20 per cent of firms believe fuel prices will be their main concern in the quarter ahead; and
• 17 per cent of firms believe access to credit will be the most important business influence in the quarter ahead.

Actual results for the December quarter 2011

• Capital investment has maintained a positive run of 11 consecutive quarters, with a net index of 10.
• 40 per cent of firms increased sales compared to the December quarter 2010, while 18 percent experienced lower sales;
• Twelve per cent of firms increased staff while 13 per cent reduced employee numbers;
• The profits index was up 10 points to an index of 14, 27 per cent of firms increased profits and 13 per cent recorded lower earnings;
• The selling price index was up eight points to an index of 21, 30 per cent of firms raised prices and nine per cent decreased prices.