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Crisis of confidence weighing on economy
Weekly petrol prices; Business Indicators; Building approvals; Job ads

Profits: Company operating profits fell by 0.8 per cent in the September quarter. Profits were up 10.2 per cent on the year to record highs.

Job advertisements: ANZ job advertisements fell by 1.7 per cent in November to be down by 12.6 per cent over the year to 153,260 in seasonally adjusted terms.

Inflation gauge: The Melbourne Institute’s headline inflation gauge was flat in November, but was up 1.5 per cent over the year. The Reserve Bank’s preferred underlying inflation measure – the trimmed mean gauge – fell by 0.2 per cent, but it is up 1.5 per cent in the year to November.

Petrol prices: According to the Australian Institute of Petroleum, the weekly national average price of unleaded petrol fell by 1.6 cents to 151.4 cents a litre.

Building approvals: Council approvals to build new homes fell by 8.1 per cent in October after rising 7.2 per cent in September. The value of home and commercial building totalled $115.1 billion in the year to September, 15.6 per cent above decade averages. Business indicators data provides a guide to how industry sectors are faring – including data on profits, sales, inventories and wages. The approvals data has implications for banks, retailers, developers, building and building material companies. Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers.

What does it all mean?

After a record weekly lift, the national petrol price eased over the past week with prices close to flat in many capital cities. In terms of the direction of oil prices – and thus petrol prices – the focus now is on the key meeting of OPEC oil ministers later this week together with the broader OPEC+ group that includes Russia.

Across capital cities it is time to only top up in Adelaide but Brisbane motorists should be filling up with current low prices. Sydney and Melbourne motorists should be preparing to fill up tanks given recent falls in unleaded pump prices.

Sales, profits and inventories all fell in the September quarter, highlighting the soft economy. The economy will struggle to report a lift in output when the data is released on Wednesday. Also building approvals fell in October with job ads down in November. Inflationary pressures are absent with annual growth of key price gauges
hovering near 1.5 per cent. The only indicator that is going up in a hurry is home prices. And that reflects both strong demand and a lack of listings (weak supply).

The bottom line is that there are few signs that fiscal or monetary stimulus are working. At least not yet. Anecdotal evidence is that Black Friday sales were well attended by Aussie consumers in person and online.

What do the figures show?

According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 1.6 cents to 151.4 cents a litre. The metropolitan price fell by 3.3 cents to 152.4 cents a litre but the regional price rose by 1.8 cents to 149.5 cents a litre.

Average unleaded petrol prices across states and territories over the past week were: Sydney (up 0.2 cents to 154.6c/l), Melbourne (up 1.3 cents to 157.4 c/l), Brisbane (down 17.2 cents to 148.4 c/l), Adelaide (down 3.0 cents to 149.1 c/l), Perth (down 0.1 cents to 146.3 c/l), Darwin (unchanged at 143.1 c/l), Canberra (down 0.1 cents to 147.7 c/l) and Hobart (down 0.2 cent to 156.0 c/l).

The smoothed gross retail margin (2-month rolling average) for unleaded petrol rose eased from 13.97 cents a litre to 13.82 cents a litre (24-month average: 13.1 cents a litre).

The national average diesel petrol price fell by 0.2 cents to 149.0 cents a litre over the week. The metropolitan price fell by 0.2 cents to 147.7 cents a litre and the regional price fell by 0.1 cents to 150.2 cents a litre.

Today, the national average wholesale (terminal gate) unleaded petrol price stands at 135.9 cents a litre, down by 0.1 cents over the week. The terminal gate diesel price stands at 136.4 cents a litre, up by 1.6 cents over the past week.

MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 144.2c; Melbourne 146.0c; Brisbane 138.0c; Adelaide 170.4c; Perth 136.0c; Canberra 147.7c; Darwin 143.1c; Hobart 155.9c.

The key Singapore gasoline price fell 40 cents (0.5 per cent) last week to US$76.50 a barrel. In Australian dollar terms, the Singapore gasoline price fell by 41 cents or 0.4 per cent to $112.29 a barrel or 70.62 cents a litre. Business Indicators – September quarter

Company operating profits fell 0.8 per cent in the September quarter – the first fall in nine quarters. Profits were up 9.4 per cent on the year.

Profits fell in 6 of the 15 industry groups in the September quarter. Profits rose most Construction (up 14.6 per cent) from Information media and telecommunications (up 9.6 per cent). Profits fell the most in Financial and insurance services (down 28 per cent) from Arts and recreation services (down 16.6 per cent).

In the year to September (rolling annual terms), profits hit a record high of $380.5 billion, up 10.2 per cent on a year earlier.

In rolling annual terms, mining operating profits rose by 24.9 per cent for the year to September to a record high of $153.6 billion. Non-mining profits rose by 2.1 per cent to a record $226.9 billion.

Inventories fell by 0.4 per cent in the September quarter after a 1.0 per cent fall in the June quarter. Inventories will add 0.2 percentage points to quarterly economic growth. Two of the six industry sectors posted gains in inventories led by Accommodation and food services (up 3.3 per cent).

Real sales rose in 8 of the 15 industry sectors in the September quarter. Sales rose the most in Electricity, gas, water and waste services (up 3.5 per cent) followed by Professional, scientific and technical services (up 1.5 per cent). Mining sales fell by 2.1 per cent with “Other services” down by 1.7 per cent.

The total value of sales fell by 0.3 per cent in the September quarter to be up 0.4 per cent over the year. Over the full year to September, sales were up 0.7 per cent on a year earlier (decade average 1.5 per cent).

In current prices, sales rose by 4.5 per cent in the twelve months to September (decade average 3.6 per cent).

In current prices, sales rose in six states and territories in the September quarter: NSW (up 0.4 per cent), Victoria (up 0.4 per cent), Queensland (down 1.3 per cent), South Australia (up 0.3 per cent), Western Australia (up 1.9 per cent), Tasmania (down 1.5 per cent), Northern Territory (up 0.8 per cent) and ACT (up 2.1 per cent).

Wages & salaries (includes changes in wages and employment) rose by 1.0 per cent in the September quarter to be up 4.8 per cent on the year (decade average 3.6 per cent). Building Approvals – October

Council approvals to build new homes fell by 8.1 per cent in October after rising 7.2 per cent in September.

House approvals fell by 6.8 per cent and apartment approvals fell by 10 per cent.

In trend terms, overall approvals fell by 0.8 per cent, the 23rd straight fall.

Over the past year 172,363 new homes were approved (decade average 195,736) – the lowest number of new approvals in just over six years (74 months).

Dwelling approvals across states/territories: NSW (down 16.4 per cent); Victoria (up 5.7 per cent); Queensland (down 10.2 per cent); South Australia (up 14.7 per cent); Western Australia (up 11.5 per cent); Tasmania (up 6.2 per cent). Trend terms: Northern Territory (down 11.1 per cent); ACT (up 3.1 per cent).

The value of all commercial and residential building approvals eased by 4.7 per cent in October. Residential approvals fell by 11.2 per cent with new building down by 12.5 per cent and alterations & additions down by 2.6 per cent. But commercial building rose by 4.2 per cent.

Over the year to October, building approvals totalled $115.1 billion, 15.6 per cent above the decade average.

What is the importance of the economic data?

Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

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 Bureau of Statistics’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.

What are the implications for interest rates and investors?

Most economists are still pricing in one further rate cut early in 2020. The problem is that consumers seem to lose confidence any time that rates are cut.

Corporate profitability is still in good shape with only one quarterly decline in over two years. Profits are at record highs for the year to September. Overall it seems like consumer and business balance sheets are in good shape. But the statistics so far show a reluctance to spend, invest and employ.

Published by Craig James, Chief Economist, CommSec