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Business numbers lift, defying the gloom
Export/import prices; Business counts

Business counts: The Australian Bureau of Statistics (ABS) has released quarterly data on business counts. In the August 2020 quarter, in seasonally adjusted terms, the number of businesses in the Australian economy increased by 0.7 per cent after also increasing by 0.7 per cent in the May quarter. Business entries were up 2.3 per cent and business exits were up 1.1 per cent.

Export & import prices: Import prices fell by 3.5 per cent in the September quarter (consensus: -2 per cent) to be down 5.7 per cent on a year ago. Export prices fell by 5.1 cent in the quarter (consensus: -3.5 per cent) to be down by 9.9 per cent on the year. The terms of trade probably fell by around 1.5 per cent in the quarter.

The terms of trade data is useful in assessing the outlook for the Australian dollar and therefore trade-exposed businesses.

What does it all mean?

• The latest information on business numbers in the COVID-19 period is encouraging. Rather than seeing large scale business closures, business numbers actually rose by 1.4 per cent in the six months to August. Clearly government support payments are propping up many businesses. And there may be delays in reporting business closures with recent changes to insolvency laws potentially playing a part. But federal, state and territory governments can be encouraged that their attempts to keep business in business do seem to have worked.

• In fact data showed that business reactivations (”Other Entries”) over the May and June quarters were the highest of any period in the last three years.

• There could be good news ahead for Aussie consumers. Prices “across the docks” (import prices) for mobile phones and computers fell sharply in the three months to December. The Bureau of Statistics says the cheaper phones are due to delays in new phone model releases (Apple only released its new iPhone 12 mid-October) and discounting to older models. And the cheaper computers reflect a firmer Australia dollar compared with the lows back in March. Consumers will wait and see whether the cheaper prices are passed on by retailers.

• While there was good news for consumers, the latest data highlights challenges for our gas and coal exporters. In the three months to September, gas prices fell almost 40 per cent (“due to the oil-linked contracts capturing the historic low oil prices in the April/May period”). And coal prices fell over 20 per cent (“due to reduced global supply and increased demand as economic activity picked up.”). But spot prices for both commodities have firmed in recent weeks.

What do the figures show?

International trade prices – September quarter

• Import prices fell by 3.5 per cent in the September quarter (consensus: -2 per cent) to be down 5.7 per cent on a year ago. Export prices fell by 5.1 cent in the quarter (consensus: -3.5 per cent) to be down by 9.9 per cent on the year. The terms of trade probably fell by around 1.5 per cent in the quarter.

Import prices

• According to the Bureau of Statistics (ABS), “the main contributors to the fall were: Telecommunications and sound recording equipment (-7.2 per cent), Office machines and ADP machines (-8.7 per cent), and Articles of apparel and clothing (-8.5 per cent).

• Offsetting rises occurred in: Petroleum, petroleum products and related materials (+5.2 per cent); Gold, non-monetary (+2.3 per cent), and Non-ferrous metals (+6.7 per cent).”

Export prices

• Main contributors to the fall were: “Gas, natural and manufactured (-39.7 per cent), Coal, coke and briquettes (-20.6 per cent), and Meat and meat preparations (-6.9 per cent).

• Offsetting rises occurred in: Metalliferous ores and metal scrap (+9.8 per cent), Petroleum, petroleum products and related materials (+37.4 per cent), and Gold, non-monetary (+2.3 per cent).”
Australian Bureau of Statistics (ABS) survey on business counts – August 2020

• The ABS has produced estimates of business entries and exits over the six months to August to try and provide insights on the impact of COVID-19.

• The ABS found: “In seasonally adjusted terms, in the May 2020 quarter, the number of businesses in the Australian economy increased by 0.7 per cent. Business Entries in this quarter grew by 0.3 per cent, and Business Exits decreased by 8.2 per cent. In the August 2020 quarter, in seasonally adjusted terms, the number of businesses in the Australian economy again increased by 0.7 per cent and both Business Entries and Business Exits increased – by 2.3 per cent and 1.1 per cent respectively.”

• “In the May 2020 quarter, Business Births were the lowest recorded in a May quarter over the last three years, and down 9.0 per cent on the same quarter last year. There is generally a minimal reporting lag in new business registrations, so the decrease in the number of Business Births may be a result of COVID-19 and the associated government restrictions. In the August quarter, when restrictions were easing in a number of states and territories, Business Births returned to levels consistent with the same period last year.”

Industry

• “The industry divisions most impacted by COVID-19, including Retail Trade, Accommodation and Food Services and Other Services, had higher Other Entries and lower Business Cancellations than in previous periods.

• The Transport, Postal and Warehousing industry division has been the strongest growing industry in recent years, but in the August 2020 quarter only recorded a marginal increase of 0.1 per cent.”

Employment size

• “In the May 2020 quarter there was a substantial decrease in the number of businesses in the 5-19, 20-199 and 200+ employment size ranges. In the August 2020 quarter, this reversed to some degree with the number of employing businesses – across all employment size ranges – increasing. These changes were primarily influenced by the movement of surviving businesses between employment size ranges. While the increase in the August 2020 quarter was moderate, the number of businesses in the 20-199 and 200+ employee size ranges were 5.4 per cent and 4.0 per cent lower than pre-COVID-19 levels respectively.”

What is the importance of the economic data?

• The Australian Bureau of Statistics (ABS) provides quarterly estimates of export and import prices. The figures assist in gauging inflationary pressures in the economy.

• The ABS continue to release a “range of new statistics to help us all understand the impacts of COVID-19.” Today the data is “Quarterly Counts of Australian Businesses, August 2020.”

What are the implications for investors?

• The shorter-term estimates on business entries and exists are still experimental. But the data is encouraging. Governments have been successful in propping up the economy – keeping business in business and keeping people in jobs. The key test will be when the support measures are wound back or removed.

• Quite remarkably the ABS reported that “The number of businesses in the Accommodation and Food Services industry division increased by 3.1 per cent in the August 2020 quarter, following an increase of 1.9 per cent in the May 2020 quarter.”

• Investor perceptions are likely to be challenged by the upbeat data on business numbers.

Published by Craig James, Chief Economist, CommSec