Biggest rise in economy-wide sales in 6 years

Business Indicators; New home sales

• Sales up: Economy-wide sales rose by 1.5 per cent in the March quarter – the biggest increase in six years (since December quarter 2009). Sales are up 2.2 per cent over the year.
• Profits fall: Company operating profits fell by 4.7 per cent in the March quarter to be down 8.4 per cent over the year.
• Rolling annual profits: In rolling annual terms, mining operating profits fell 17.4 per cent for the year to March to $62.6 billion – a six-year low. Non-mining profits rose by 2.8 per cent to $187.7 billion for the year to March, although down from the record high of $189.1 billion in the year to December.
• New home sales ease: New home sales declined by 4.7 per cent in April from 7-month highs. The decline reflected a fall in both detached house sales (-3.0 per cent) and sales of ‘multi-units’ (-10.8 per cent).

The Business Indicators data provides a guide to how industry sectors are faring – including data on profits, sales, inventories and wage. The new home sales data is important for housing-dependent companies such as builders, developers and retailers

What does it all mean?

• The Business Indicators publication contains the latest information on sales, profits, wages and inventories. But the quarterly data can be a little “noisy”. A little digging is required to reveal the trends.
• If you aggregate sales across industries, the data shows that economy-wide sales rose by 1.5 per cent in real, seasonally adjusted terms in the March quarter – the best growth in over six years. Annual growth of 2.2 per cent was the best in a year.
• While businesses are struggling with low prices for their goods, sales are growing solidly in volume terms.
• Again, profits data shows an aggregate decline in the latest quarter although the majority of industry sectors posted gains in profits. Overall, non-mining profits were up almost 3 per cent in rolling annual terms in the March quarter on a year ago. However profits eased a touch from the record highs set in calendar 2015. Clearly “disruption” is serving to keep prices down and restrain growth in bottom-line earnings.

What do the figures show?

Business indicators

• Company operating profits fell by 4.7 per cent in the March quarter after falling by 3.6 per cent in the December quarter. Profits were down 8.7 per cent over the year.
• Profits fell in just 6 of the 15 industry groups. Profits fell most in Financial and insurance services (down by 69.4 per cent) and Manufacturing (down 14.5 per cent). Profits rose most in “Other services” (up 19.3 per cent) and Administrative and support services (up 14.9 per cent).
• In rolling annual terms, mining operating profits fell 17.4 per cent for the year to March to $62.6 billion – a six-year low. Non-mining profits rose by 2.8 per cent to $187.7 billion for the year to March, although down from the record high of $189.1 billion in the year to December.
• Unincorporated gross operating profits fell by 1.5 per cent in the March quarter after lifting 16 per cent in the December quarter. Business gross operating profits fell by 4.5 per cent in the March quarter after falling 3.3 per cent in the December quarter. Company profits before tax fell by 15.1 per cent in the March quarter after falling by 18.8 per cent in the December quarter.
• Inventories rose by 0.4 per cent in the March quarter after a flat result in the December quarter and 0.1 per cent fall in the September quarter. Inventories rose in Mining (up by 1.2 per cent) and Wholesale trade (up 0.9 per cent) but fell most in Electricity, gas, water and waste services (down 9.5 per cent) and Manufacturing (down 0.4 per cent)
• Sales fell in 3 of the 15 industry sectors in the March quarter. Sales fell the most in Other Services (down 2.6 per cent) followed by Rental, hiring and real estate services (down 0.9 per cent) and Manufacturing (down 0.3 per cent). Sales rose most in Mining (up 6.2 per cent), followed by Financial and insurance services (up 3.8 per cent) and Electricity, gas, water and waste services (up 3.1 per cent).
• The total value of sales in March quarter rose by 1.5 per cent – biggest rise in six years. Annual growth rose from 1.4 per cent to 2.2 per cent
• In current prices, sales rose in four states and territories in the March quarter: Northern Territory (up 1.2 per cent), Victoria (up 0.8 per cent), ACT (up 0.7 per cent), and NSW (up 0.2 per cent).
• Sales fell in Tasmania (down 5.1 per cent), South Australia and Western Australia (both down 3.1 per cent) and Queensland (down 0.2 per cent).
• Wages & salaries rose by 0.6 per cent in the March quarter to be up 3.5 per cent over the year.
  New home sales
• Total seasonally-adjusted new home sales declined by 4.7 per cent in April 2016 from the seven-month high recorded in March. The decline in total sales was reflected in both detached house sales (-3.0 per cent) and sales of ‘multi-units’ (-10.8 per cent).
• There were around 7,600 new homes sold in April, above the 5-year average of 6,867 and above the decade average of 7,323 home sales.
• The Housing Industry Association reported: “In the month of April 2016 detached house sales declined in four of the five mainland states: Western Australia (-19.8 per cent); New South Wales (-8.1 per cent); Queensland (-7.8 per cent) and South Australia (-1.3 per cent). Only in Victoria did detached house sales increase (+14.3 per cent).” The lift in Victoria was “due to broad-based strength in large volume builder activity in the state during the month.”
  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.
• The Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia’s largest 100 home builders. The survey covers around 14 per cent of the home building industry

What are the implications for interest rates and investors?

• Companies are lifting sales, but prices remain restrained, capping revenues and profits. “Disruption” is hitting more and more companies – principally globalised competition (especially online) and new entrants into established industry sectors, causing a disruption to the status quo.
• The latest data doesn’t have a great influence on the next interest rate decision. The Reserve Bank is determining whether lower-inflation Australia can justify having an interest rate structure closer to those in other major advanced economies.