Felicity Emmett, Head of Australian Economics at ANZ, notes that the Australian business indicators were mixed in Q3, with profits growing at a slower-than expected rate, and inventories and wages growing strongly.
Key Quotes
“Disappointingly, non-mining profits were slightly down in the quarter, leaving them 2.4% lower over the past year. Post today’s data, we remain comfortable with our forecast for flat Q3 GDP, although we will review our estimate after tomorrow’s public demand and net exports figures.
- Company profits were weaker than expected in Q3, rising a modest 1.0% q/q. Adjusting for gains on inventories, the GDP measure of non-financial profits was weaker, rising by just 0.4% q/q.
- Mining profits drove the result. They rose a solid 6% following on from a 16% gain in Q2. Profits ex mining declined 0.7%, which was a disappointing result coming after a strong 3.6% jump in Q2. We expect, though, that profits ex mining are still being held down by the mining sector. That is, the 20% fall in construction profits over the past year is clearly related to the downturn in mining investment, while the 16% decline in profits in professional services is also likely to have been affected. That said, some sectors outside the mining sector still look to be struggling to generate profit growth, eg retail (-6%% y/y), IT (-6% y/y), and wholesale trade (-4% y/y). Small business profits were particularly weak, dropping 8.5% q/q.
- Inventories rose 0.8% q/q in Q3, implying that stocks will add 0.2pp to growth in Q3.
- Growth in the wages bill was +1.1% q/q, much stronger than the WPI and labour market numbers implied, although the Q2 result was revised down from an initially reported 0.8% to just 0.4%. This suggests the GDP measure of the wages bill could show a step-up in growth. With employment growing at around 0.2% in the quarter, this implies a solid rebound in the GDP measure of the average wage rate in the economy – which is encouraging for the inflation outlook.”
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