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Record profits; Record vehicle salesBusiness Indicators; New vehicle sales; Job advertisements
Record profits in 2017: Company operating profits rose by 2.2 per cent in the December quarter to stand 4.3 per cent up on the year. In 2017 profits hit a record high of $322.3 billion, up 19.8 per cent over the year.
Job advertisements fell by 0.3 per cent in February – the second fall in three months. Job ads are still up 13.3 per cent on a year ago.
New vehicle sales: According to the Federal Chamber of Automotive Industries (FCAI), new vehicle sales hit a record high of 1,199,731 units in the year to February, up by 2.4 per cent on a year ago. 
What does it all mean?
Sales are rising strongly, boosting profits. In short, the economy is doing well.
The industry body for the new vehicle industry – the Federal Chamber of Automotive Industries – sums it up best by saying that the latest sales result “maintains strong industry momentum at an important time.” Aussie consumers and businesses continue to update their vehicles with annual sales hitting new highs month after month.
The softening of job advertisements in recent months needs to be watched. Still, after a record 16 straight month of job gains, at some stage hiring needed to flatten out and perhaps we have reached that time.
What do the figures show?Business Indicators
Company operating profits rose by 2.2 per cent in the December quarter after falling 0.1 per cent in the September quarter and falling 3.8 per cent in the June quarter. Profits were up 4.3 per cent on the year.
Profits rose in just eight of the 15 industry groups in the December quarter. Profits rose most in Administrative and support services (up 18.7 per cent) and Accommodation and food services (up 18.0 per cent). The biggest falls in profits were Financial and insurance services (down 15.5 per cent) and Information media and telecommunications (down 14.4 per cent).
In 2017, profits hit a record $322 billion, up 19.8 per cent on a year earlier.
In rolling annual terms, mining operating profits rose by 40.4 per cent for the year to December to a record high of $109.3 billion. Non-mining profits rose by 11.4 per cent to a record $212.9 billion.
Unincorporated gross operating profits rose by 1.2 per cent in the December quarter after falling 2.4 per cent in the September quarter. Business gross operating profits rose by 2.1 per cent after falling by 0.3 per cent in the September quarter. Company profits before tax rose by 19.0 per cent in the December quarter after rising 6.7 per cent in the September quarter.
Inventories rose by 0.2 per cent in the December quarter after rising 0.1 per cent in the September quarter. Inventories rose the most in Mining (up 4.9 per cent) and Electricity, gas, water and waste services (up 4.1 per cent) but fell most in Accommodation and food services (down 1.2 per cent).
Sales rose in eight of the 15 industry sectors in the December quarter. Sales rose the most in Arts and Recreation services (up by 2.8 per cent) and Rental, hiring and real estate services (up by 2.4 per cent). Sales fell most in both Electricity, gas, water and waste services and Financial and insurance services (both down 1.9 per cent).
The total value of sales rose by 0.1 per cent in the December quarter to be up 3.1 per cent over the year (decade average 1.6 per cent). Non-mining sales rose by 0.2 per cent in the quarter with annual growth lofting from 3.1 per cent to a 6-year high of 3.2 per cent.
In 2017, sales rose by 2.5 per cent – the strongest calendar year gain in nine years.
In current prices, sales rose in all states and territories in the December quarter except Tasmania: NSW (up 1.7 per cent), Victoria (up 1.2 per cent), Queensland (up less than 0.1 per cent), South Australia (up 0.7 per cent), Western Australia (up 1.1 per cent),  Tasmania (down 0.6 per cent); Northern Territory (up 0.9 per cent) and ACT (up 2.2 per cent).
Wages & salaries rose by 1.0 per cent in the December quarter to be up 4.3 per cent over the year.
Job advertisements
Job advertisements fell from 6-year highs, down 0.3 per cent in February and the second fall in three months. Job ads stand at 177,284 and are up 13.3 per cent on a year ago.
New vehicle sales
According to the Federal Chamber of Automotive Industries (FCAI), there were 95,999 new vehicle sales in February, up 7.8 per cent over the year. In the twelve months to February sales hit a record 1,199,731 units, up 2.4 per cent on a year ago.
The FCAI reported: “The February 2018 market of 95,999 new vehicle sales is an increase of 6,974 vehicle sales or 7.8 per cent on February 2017 (89,025) vehicle sales. February 2018 (24) had the same number of selling days as February 2017, which resulted in an increase of 290.6 vehicle sales per day.”
“The Passenger Vehicle Market is down by 250 vehicle sales (-0.7 per cent) over the same month last year; the Sports Utility Market is up by 4,303 vehicle sales (12.1 per cent); the Light Commercial Market is up by 2,195 vehicle sales (13.3 per cent); and the Heavy Commercial Vehicle Market is up by 726 vehicle sales (31.9 per cent) versus February 2017.”
“All the states and territories produced sales gains during February compared with the same month last year. The strongest result was for Victoria which increased 14.2 per cent, followed by Tasmania with 11.8 per cent, Western Australia with 10 per cent, then the ACT (+9.7 per cent), Queensland (+6.0 per cent), South Australia (+5.8 per cent), NSW (+3.4 per cent) and the NT (+1.3 per cent).”
“Business sales rose 11.8 per cent for passenger cars and 18.7 per cent for SUVs during February, while private sales for SUVs gained 4.1 per cent. Total business sales rose by 16.5 per cent compared with February 2017.” 
What is the importance of the economic data?
The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
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.
The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
What are the implications for interest rates and investors?
Corporate Australia is in great shape – as CommSec recently concluded in the assessment of the listed company profit-reporting season. Profits are rising, although understandably the pace of profit growth has slowed.
Overall sales in the economy are growing strongly. And the latest data show that sales of new vehicles are contributing with annual sales at record highs.
The wage bill for businesses is growing – because both employment and wages are growing. The lift in the wage bill is yet another sign of a healthy economy.
Interest rate settings remain on hold. But a lift in rates is possible later in 2018.
Published by Craig James, Chief Economist, CommSec