Business Confidence Falls

Business confidence across Townsville remains positive but has fallen to its lowest level in 2 years as reflected in the release of the PVW Partners December 2022 quarterly Business Confidence Survey.

The December 2022 quarter resulted in an index of 3.4, a 6.7 point drop from the previous quarter’s strong result of 10.1, the largest single period decline since the COVID-19 impacted June 2020 quarter.

Carl Valentine, PVW Partners Managing Partner said, “for the last couple of years business confidence in Townsville has been incredibly resilient, however that resilience appears to be reaching its limits in the face of resource constraints, inflationary pressures, continuing increases in interest rates and a lack of clear direction from the State and Federal Governments on key regional projects”.

Commencing in September 1991, PVW Partners Townsville Business Confidence Survey has now been running for over 30 years and is a unique measure of the levels of confidence of Townsville’s business community.

Carl Valentine observed “While some elements of the index, like employment expectations and training expenditure remained strong, there was a clear weakening in business expectations around sales, consumer demand and capital expenditure for the December 2022 quarter”.

“While the past 12 months or so has seen relatively higher levels of expectations around capital expenditure and business growth, this quarter has seen this pullback somewhat, perhaps in reflection of capital projects having been completed over that period or in response to the highest costs to now deliver those projects resulting in a more measured approach going forward.”

“The December 2022 quarter results also indicated that our businesses working more closely with the mining sector were less confident than other businesses, with the key differences again being in relation to sales growth and demand for goods and services from the mining sector.”

This survey also asked Townsville’s business owners and managers several questions around the impact of rising interest rates. From May to September 2022, the RBA has increased the cash rate target from 0.1% to 2.35% (with a further increase of 0.25% in October 2022 to 2.60%). Lenders have passed on those rate increases increasing the cost of servicing debt.

Carl Valentine said “In good news for our region, 46% of our respondents indicated that the increasing interest rates had thus far had no impact on their business decision making. This likely reflects a cohort of businesses with lower, or no, levels of debt and those that are enjoying good trading conditions that has more than offset the higher cost of the debt they have in their business”.

“Of some concern, 25% of respondents indicated they were focusing on managing other costs in their business to allow for the higher debt servicing costs. Continuing interest rate hikes could see lower levels of local business expenditure which would magnify the impact throughout our region.”

“It was pleasing to see that none of our respondents would be cancelling capital projects merely because of the increasing interest rates.”

Carl Valentine went on to note that “Just under 35% of respondents had thus far not noticed any interest rate increase related changes in the behaviour of their customers and a further 25% indicated customer behaviours were changing but those changes couldn’t be attributed to interest rates only and were likely related to the broader inflationary pressures now faced by business and consumers alike”.

“Smaller groups of respondents observed that their customers were seeking better pricing outcomes (19%) or deferring purchasing decisions (7%)”.

Carl Valentine concluded that “Townsville businesses will adjust to the evolving economic environment and despite the December 2022 quarter result are for the most part looking forward to 2023 and beyond”.