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Growing profitability hurt by rising operating and labour costs

CCIQ’s Pulse Report for the September quarter is out today and shows consistently high operating and labour costs resulted in weak profitability, however businesses reported on-average operating levels had returned to pre-COVID levels for the first time since March 2020.

It comes as the Public Health and Emergence Declaration which formed the state’s COVID-19 response lifts this week (October 31).

The survey shows macroeconomic issues rather than business performance are likely deteriorating confidence in the national and state economies. This includes inflation and anticipation of a slowing economy due to higher interest rates, as well as ongoing widespread labour and skills shortages.

CCIQ CEO Heidi Cooper said businesses were looking to the typically optimistic summer and holiday period and the next 12 months with weaker confidence in both the state and national economies.

“Usually at this time of year confidence would be stronger ahead of a busy Christmas trading period but on this occasion we expect labour shortages and wider macroeconomic influences are impacting future economic confidence,” Ms Cooper said.

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“We’re seeing confidence levels in the next 12 months are weaker than this time last year and also below the 10-year average. This is despite satisfactory business performance.

“We saw this unusual decoupling of business conditions and confidence for the first time in the June quarter results.

“We know there are also ongoing skilled labour shortages, met with rising wage and labour costs, alongside increasing fuel and energy prices which is hindering profitability and forward confidence.”

“Even so, more than 60% of businesses say they are operating at levels greater than or equal to that of March 2020. In fact, on average, Queensland businesses are now operating at 105% above this level.

“While it’s positive to see business levels return to pre-COVID standards, there is still work to do support long-term business confidence,” Ms Cooper said.

“This is an important time for Queensland businesses with a decade of opportunity ahead of us.

“Now is the time for us to be working to resolve the impacts which are affecting businesses’ ability to thrive and plan for those future opportunities.”

In other findings, more than 70% of businesses said operating costs had increased and there were expectations for further cost pressures in the December quarter.

“Labour costs in the September quarter also increased significantly, reflecting state-wide staff and skill shortages,” Ms Cooper said.

“Businesses are struggling to find skilled labour which means some businesses are offering higher wages to retain and attract employees in a competitive labour market.

“Other businesses are focusing on retaining and developing their existing workforce, including rethinking job roles and responsibilities and training existing staff to meet demand.

“We know workforce challenges are a top priority for Queensland businesses. The ability to recruit and retain staff is the most significant constraint on business growth.”

Key findings

  • General business conditions improved in the September quarter as a consequence of better sales with the index above this time last year and the 10-year average.
  • Total sales and revenue in the September quarter improved and is expected to continue improving in the December quarter.
  • More than half (52%) of businesses indicated their profitability fell during the quarter.
  • More than half (56%) of businesses indicated their employment levels did not change in the September quarter, with levels overall satisfactory, representing a stagnate labour force.
  • Businesses indicated a continuing strengthening in investment with capital expenditure levels satisfactory, however one in four businesses expect to decrease investment in the December quarter.
  • Operating costs in the September quarter continued to significantly rise, with further increases expected in the next three months.
  • Close to seven in 10 (69%) businesses increased their labour costs in the September quarter.
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