The business sector is one of the hardest hit by the global recession as shown by further declines in company profits and the unwillingness to hold large inventories, economists say.
While the latest retail trade figures show that household spending has held up well due, in part, to lower interest rates and government cash handouts, the picture is a lot more grim for corporate Australia.
Company gross operating profits have fallen for the past six months – tumbling 7.2 per cent in the March quarter after an 8 per cent decline in the previous quarter, Australian Bureau of Statistics (ABS) figures on Monday showed.
The market had been expecting a fall of 4.5 per cent.
Inventories also fell – albeit at a slower pace than at the end of last year – as firms ran down existing stock and held back from placing new orders.
The ABS Business Indicators data also showed falling sales and weak wages growth.
ANZ Banking Group economist Riki Polygenis said the data confirmed that the economic slowdown had heavily affected the business sector.
“The burden of the downturn is falling onto the business sector, with profits, investment and inventories all falling in the quarter,” Ms Polygenis said.
“The drop in corporate profits and investment is expected to continue through the remainder of 2009, with a notable contraction expected in the mining sector as contract prices reset.”
ABS figures showed business inventories declined by 1.2 per cent in the March quarter, which was slightly better than the 1.5 per cent reduction in the December quarter.
The rundown was widespread, with retail, manufacturing and the “other” category, which includes restaurants, electricity, gas, water and accommodation, posting the largest declines.
Profits declined the most among firms in manufacturing (down 24.5 per cent), property and business services (down 14.7 per cent) and mining, which fell 11.2 per cent.
Two industries targeted by federal government stimulus actions – retail and construction – went against the trend.
Retail trade profits were up 15.5 per cent in the March quarter, the largest quarterly jump since December 2001, while construction profits grew 6.5 per cent.
Profits among transport and storage firms was also up in the quarter.
The federal government’s two stimulus packages featured cash bonuses to pensioners, low-to middle-income families, carers and taxpayers, as well as a temporary boost to the first home owner grant.
Monday’s ABS data added to recent partial indicators of gross domestic product (GDP) due on Wednesday.
CommSec chief economist Craig James said it would be “touch and go” whether Australia slipped into recession.
“For all intents and purposes the Australian economy has been broadly flat over the past six months, in marked contrast to the declines in other parts of the globe,” Mr James said.
Most economists expect the national accounts to show Australia fell into recession in the March quarter thanks to a second straight quarterly contraction.
Other partial indicators for GDP – balance of payments and government expenditure figures for the March quarter – were due on Tuesday.
The Reserve Bank of Australia (RBA) meets on Tuesday, with most economists expecting the central bank to leave the cash rate unchanged at a 49-year low of three per cent.
Ms Polygenis said the recent data was unlikely to alter’s the RBA’s view that “enough work has been done for the time being”.
“The question has now turned to whether the RBA will be forced to cut the cash rate later in the year, should economic conditions deteriorate more sharply than expected,” Ms Polygenis said.