Profits hit record highs. Petrol prices flatten

Business Indicators; Weekly petrol price

• Profits up: Company operating profits rose by 20.1 per cent in the December quarter to record highs.
• Sales ease: Economy-wide sales rose by 0.6 per cent in the December quarter after falling 0.1 per cent in the September quarter. Annual growth of sales lifted to 2.7 per cent (biggest rise in 5 years).
• Retail petrol: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 0.5 cents to 131.6 cents a litre in the past week. Across capital cities, prices rose in just Sydney and Hobart. The terminal gate (wholesale) price hit two-month lows.

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 lifted by 0.6 per cent in real, seasonally adjusted terms in the December quarter after a small 0.1 per cent fall in the September quarter. Annual growth of sales now equals the fastest growth pace in the past five years.
• And profits hit record highs, underpinned by ‘lumpy’ gains in Finance and Mining sectors. The data lines up with the very good profit reporting season from listed companies that is now coming to an end.
• The bottom-line is that the economy is motoring out of the flat spot caused by the UK Brexit vote, Federal Election and US Presidential Election.
• Over the past four months the average petrol price has held between $1.20 and $1.35. Prices look set to hold in the range for a while yet as investors monitor the compliance of OPEC countries with agreed cuts in oil production. It is a case of so good, so far.

What do the figures show?

Business indicators

• Company operating profits rose by 20.1 per cent in the December quarter to a record high of $77.8 billion after rising 1.5 per cent in the September quarter. Profits were up 26.2 per cent over the year.
• Profits fell in just 6 of the 15 industry groups. In the quarter, profits fell most in Arts and recreation services (down by 15.8 per cent) and Accommodation and food services (down 14.4 per cent). Profits rose most in Financial and insurance services (up 108.9 per cent) and Mining (up 49.7 per cent).
• In rolling annual terms, mining operating profits rose by 16.1 per cent for the year to December to $76.8 billion. Non-mining profits rose by 1.0 per cent to a record $190.8 billion for the year to December.
• Unincorporated gross operating profits rose by 7.7 per cent in the December quarter after rising 9.6 per cent in the September quarter. Business gross operating profits rose by 18.4 per cent after falling by 0.2 per cent in the September quarter. Company profits before tax rose by 67.9 per cent in the December quarter after rising by 1.0 per cent in the September quarter.
• Inventories rose by 0.3 per cent in the December quarter after rising 0.9 per cent in the September quarter. Inventories fell in four of six industry sectors. Stocks rose most in Wholesale trade (up 2.5 per cent) but fell most in Accommodation and food services (down 10.2 per cent).
• Sales fell in 6 of the 15 industry sectors in the December quarter. Sales fell the most in Construction (down 3.8 per cent) followed by Financial and insurance services (down 3.5 per cent). Sales rose most “Other Services” (up 5.6 per cent) and Electricity, gas, water and waste services (up 5.1 per cent).
• The total value of sales in the December quarter rose by 0.6 per cent in the December quarter after falling by 0.1 per cent in the September quarter. Annual growth lifted from 1.8 per cent to 2.7 per cent – equalling the highest growth in five years.
• In current prices, sales rose in all of the states and territories in the December quarter: NSW (up 3.1 per cent), Victoria (up 0.6 per cent), Queensland (up 3.5 per cent), South Australia (up 0.6 per cent), Western Australia (up 3.9 per cent), Tasmania (up 2.9 per cent), Northern Territory (up 4.7 per cent) and ACT (up 2.5 per cent).
• Wages & salaries fell by 0.5 per cent in the December quarter after rising by 0.7 per cent in the September quarter. Wages are up 1.0 per cent over the year.

Petrol price

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 0.5 cents to 131.6 cents a litre in the past week. The metropolitan petrol price rose by 0.8 cents to 130.4 cents per litre while the regional price was unchanged at 134.0 cents per litre.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (up by 11.4 cents to 137.9 c/l), Melbourne (down by 3.9 cents to 122.9 c/l), Brisbane (down by 1.9 cents to 125.1 c/l), Adelaide (down by 6.9 cents to 135.8 c/l), Perth (down by 1.2 cents to 131.6 c/l), Darwin (down by 0.6 cents to 139.9 c/l), Canberra (down by 0.1 cents to 139.6 c/l) and Hobart (up by 0.4 cents to 143.5 c/l).
• The national average Australian price of diesel petrol fell by 0.1 cents to 130.7 cents per litre in the week to February 26. The metropolitan price fell by 0.1 cents to 131.0 c/l, while the regional average price fell by 0.2 cents to 130.5 c/l.
• The national average wholesale (terminal gate) unleaded petrol price fell over the past week and today stands at a 2-month low of 116.6 cents a litre, down by 2.6 cents a litre over the week. The terminal gate diesel price stands at 115.3 cents a litre, largely over the previous week.
• Last week the key Singapore gasoline price was unchanged at US$68.40 a barrel. In Australian dollar terms the Singapore gasoline price fell by 9 cents a barrel or 0.1 per cent to $88.64 a barrel or 55.75 cents a litre.
• MotorMouth records the following retail prices for capital cities today: Sydney 135.0c; Melbourne 121.0c; Brisbane 124.2c; Adelaide 128.5c; Perth 123.1c; Canberra 138.5c; Darwin 138.6c; Hobart 143.7c.

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.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth

What are the implications for interest rates and investors?

• Companies are lifting profits and sales, leaving behind the flat spot experienced in mid-2016. With companies well and truly cashed up, now the question is what to do with all the funds. The Reserve Bank hopes that more businesses will invest in their businesses – buying equipment and modernising and/or expanding premises.
• The latest data will give the Reserve Bank more reasons to stay on the interest rate sidelines.