Australian corporate profits rose in late 2017

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  • Australian before-tax operating profits rose by 2.2% in the final three months of 2017.
  • Business inventories grew by 0.2% over the quarter, meaning they’ll likely make no contribution to Australian Q4 GDP.
  • Salaries and wages paid to Australian workers grew by 4.3% over the year, largely reflecting strong hiring levels rather than a pickup in wage pressures.

Company corporate profitability improved in late 2017, according to data released by the Australian Bureau of Statistics (ABS) today.

Before-tax profits increased by 2.2% in the December quarter after seasonal adjustments, recovering from a 0.1% decline in the three months to September last year. It was also above the 1.5% increase expected by economists.

From a year earlier, gross operating profits increased by 4.3%.

While a reasonable result, economists at ANZ Bank said the quarterly increase was not as strong as headline figures would suggest.

“After adjusting for inventory valuations, the result was much weaker with profits actually falling 2.4% [over the quarter],” it said, referring to a $2.4 billion increase in the value of inventories on hand.

By sector, ANZ said that non-mining profits rose 1.2% over the quarter leaving them up 5.8% on a year earlier.

“While this is a solid result, the buoyancy in business conditions and profitability indicators would have suggested a stronger result,” it said.

This chart from ANZ shows the year-on-year change in gross operating profits by individual sector.

Source: ANZ Bank

“In terms of annual growth, the areas of strength are administrative services, utilities, wholesale trade and finance,” ANZ says. “Conversely, one of the weakest sectors is construction, which seems surprising given the strength in activity.”

Outside of corporate profits, ANZ said the remainder of the business indicators report was also a little disappointing, noting that inventories and worker salaries both grew a little slower than expected.

“Inventories rose 0.2% in Q4, slightly less than expected,” it said. “This suggests that stocks will make no contribution to GDP growth in Q4.”

And while salaries and wages paid to workers did lift by 1% over the quarter in seasonally adjusted terms, ANZ said this too was a little weak given strength in hiring over the year.

“Growth in the wages bill was solid, although not as strong as we expected,” it said.

In 2017, Australian employment grew by over 400,000, the largest increase over a calendar year on record.

Over the year, and largely reflecting stronger employment growth rather than a noticeable lift in wages, total salaries and wages paid to workers rose by 4.3% in seasonally adjusted terms, according to the ABS.