Company profits fell for the fourth straight quarter, dropping by 2.9 per cent in the September quarter. Profits stand 13.0 per cent lower than a year ago.
- Sales fell in 8 of 15 sectors in the September quarter while inventories rose for the fourth straight quarter, up 1.1 per cent.
- Wages & salaries fell by 0.2 per cent in the September quarter.
What does it all mean?
- For many parts of Corporate Australia, business conditions are as tough as the GFC. Profits have fallen for the fourth straight quarter, inventories have lifted for the fourth straight quarter and sales are sluggish across many key sectors.
- Ask businesses if rates should be cut and you would get a resounding ‘yes’. Conservative consumers, a high Aussie dollar and tough global economic conditions have local businesses looking for some relief.
- Confidence is the key missing ingredient. Businesses and consumers are well placed to handle the tough operating environment, but they lack the confidence to start the ball rolling by investing, spending and employing. Everyone is waiting for someone else to take the first step.
What do the figures show?
- Company operating profits fell for the fourth straight quarter, dropping by 2.9 per cent in the September quarter. But while profits weakened, they only dropped in five of the 15 industry groups.
- Profits fell most in Administrative & support services, down by 48.4 per cent, while Mining profits fell 12.2 per cent and Wholesale trade profits fell by 10.4 per cent. Retail trade profits fell by 3.4 per cent. But profits rose by 10.8 per cent in Manufacturing (only first gain in six quarters) and rose by 44.2 per cent Financial & insurance services.
- Unincorporated gross operating profits fell by 2.0 per cent in the September quarter. Business gross operating profits fell by 2.8 per cent. Company profits before tax fell by 1.9 per cent – the seventh straight quarterly decline.
- Inventories rose for the fourth straight quarter, lifting by 1.1 per cent in the September quarter. Just like last quarter we assume that the increase in stocks was unintended, especially in Mining due to slower global demand. Inventories rose by 7.0 per cent in Mining. Stocks only fell in one of the six sectors – Accommodation & food services, down by 6.8 per cent (fifth straight decline).
- Sales fell in 8 of the 15 industry sectors in the September quarter. Sales rose most in Electricity, gas, water & waste services (up 3.5 per cent) and fell most in Professional, scientific and technical services (down 2.4 per cent). But sales rose 2.3 per cent in Mining and rose 1.3 per cent in Manufacturing while falling 0.4 per cent in Retail trade.
- In current prices sales fell in five of the eight states and territories in the September quarter.
- Wages & salaries fell by 0.2 per cent in the September quarter – the first fall since 2009.
- In the Mining sector the ratio of sales to wages fell over the past year from 10.2 to 7.86; the ratio of profits to sales fell from 0.47 to 0.37; and the ratio of inventories to sales rose from 0.24 to 0.33.
What is the importance of the economic data?
- The quarterly Business Indicators publication by the Bureau of Statistics contains measures such as inventories, company profits and income from sales. Higher inventory (stock) levels can be either intentional or unintentional. If stocks are low and sales are expected to rise in the future, businesses will seek to build up stocks. However an unintentional build-up in stocks is where sales fall short of expectations, leaving more goods on the shelves than desired. If profits are increasing then this may point to increased capital spending and employment in the future. Rising profits are also a sign of favourable business conditions.
What are the implications for interest rates and investors?
- There is a strong chance the Reserve Bank will cut rates today. But if it’s not tomorrow, the Reserve Bank will remain biased to cut rates until it is convinced that the worst is over. The Reserve Bank can be confident that any rate cut won’t send the economy into over-drive.
- If you ask businesses how conditions are, most will say that they are still making money, but it is tough. That is, they have to work harder to keep the money rolling in.
- The good news is that the US economy is recovering together with China. But the “fiscal cliff” remains a key risk. Locally, the high Aussie dollar and lack of confidence are holding back activity.