Australian company profits and inventories both undershot expectations in the June quarter, creating downside risks ahead of the release of the nation’s GDP report on Wednesday.
According to the Australian Bureau of Statistics (ABS), gross company operating profits fell by 4.5% in the three months to June in seasonally adjusted terms, a slight miss on the 4% decline that had been expected by economists.
Mining sector profits fell by 11.5% during the quarter, driven by a previous decline in commodity prices which has now subsequently reversed.
Non-mining profits were also a tad soft, declining 0.6% following two quarters of strong gains.
Despite the quarterly decline, profits were sill up 21.2% on the levels of a year earlier, again reflecting the surge in commodity prices over that period.
While profit levels fell in the quarter, there was better news for employees with wage and salaries lifting by 1.2% in seasonally adjusted terms, leaving them up 1.6% on 12 months earlier.
That reflects the strong lift in hiring and hours worked over the quarter, helping to offset ongoing weakness in wage growth, said Felicity Emmett, senior economist at ANZ.
“Growth in the wages bill picked up, supported by strong growth in employment,” she said following the release of today’s report. “This strength will provide some offset to weak profit growth in GDP.”
Adding to downside risks to real GDP in the June quarter national accounts, the ABS said that inventory levels fell 0.4% during the quarter in seasonally adjusted chain volume terms, bucking expectations for an increase of 0.3%.
That will marginally detract away from economic growth, as opposed to the small increase that a majority of economists had expected.
“These numbers pose some downside risk to Wednesday’s Q2 GDP release,” said Emmett.
Following the release of today’s data, markets will receive the last of the GDP inputs tomorrow with Balance of Payments, including net exports, along with government expenditure figures.
Before the release of today’s data, the median economist forecast was looking for quarterly growth in real GDP of 0.7%, leaving the year-on-year rate slightly higher at 1.8%.