The profitability of Australian companies soared last quarter, mainly due to enormous price increases in the nation’s key commodity exports.
According to the ABS, gross company profits jumped by 20.1% in the final three months of 2016 in seasonally adjusted terms, the largest percentage rise since early 2001.
At $A77.8 billion, the quarterly total was the largest on record, and left gross profits up 26.2% on the same quarter a year earlier.
Massive, and while booming commodity price contributed to the stellar increase, the improvement was not just limited to mining companies, says ANZ.
“Much of this increase was due to the mining sector, where profits rose 50% on the back of rising export volumes and prices across iron ore, coal and LNG,” said Daniel Gradwell and David Plank, economists at the bank.
“Encouragingly, non-mining profits also posted a strong increase — up 8.7% for the quarter — with a number of sectors posting double digit gains.”
Outside of mining, the construction sector also put in a strong performance seeing gross operating profits rise by a more than nifty 32%.
Non-farm business inventories grew by 0.3% during the quarter, less that the 0.5% increase expected, which may subtract 0.2 percentage points from real quarterly GDP, according to ANZ.
However, while corporate profits soared, the news was more sobering when it came to total employee salaries and wages paid during the quarter.
They fell by 0.5% in seasonally adjusted terms, the largest contraction since the GFC, leaving the annual increase at a paltry 1%.
“This is well below the moderate growth implied by the wage price index (WPI) and labour market data,” says Gradwell and Plank, noting that it is likely to weigh on Q4 GDP given its ties to household consumption, the largest component in the national accounts.
Along with tepid hourly wages growth, the switch from full to part-time employment growth in Australia likely contributed to the weak quarterly and annual result.
Gradwell and Plank described the December quarter business indicators report as “on the positive side overall”, noting that the “sharp jump in company profits is likely to provide some welcome support for Q4 GDP after last week’s construction and investment data disappointed.”
However, the pair cautioned that the soft wage result will “temper some of the resultant enthusiasm”.
“(This) provides further evidence that a soft inflationary environment is going to persist for an extended period,” they said, suggesting that the “will continue to be a key issue going forward”.
On Tuesday, the last of Australia’s GDP inputs will arrive with government spending and balance of payments figures, including net export contribution to GDP, set to be released by the ABS.
That will be followed a day later by Australia’s Q4 GDP report on Wednesday, March 1.