Record petrol slide; Job ads up; Record profits
Weekly Petrol Prices; Business Indicators; Inflation; Job ads
Petrol prices: According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by a record 9.3 cents to a 12-month low of 136.8 cents a litre last week.
Profits: Company operating profits fell by 3.5 per cent in the December quarter. But profits in calendar 2019 were up 8.1 per cent on the year to record highs.
Job advertisements: ANZ job advertisements rose by 0.7 per cent in February after rising by 4.0 per cent in January.
Inflation gauge: The Melbourne Institute’s headline inflation gauge fell by 0.1 per cent in February to be up 1.6 per cent over the year. Similarly, the Reserve Bank’s preferred underlying inflation measure – the trimmed mean gauge – fell by 0.1 per cent to be up 1.6 per cent on the year.
Business indicators data provides a guide to how industry sectors are faring – including data on profits, sales, inventories and wages. The job advertisements data is a leading indicator of the job market and therefore important for consumer-focussed stocks and companies such as SEEK. Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. The inflation gauge estimates month-to-month price movements for a wide-ranging basket of goods and services.
What does it all mean?
• As forecast last week, East Coast petrol prices have fallen to $1.20-$1.30 a litre. And pump prices are unlikely to stop there. In the past two weeks, the Singapore gasoline price has fallen around 9 cents a litre in Australian dollar terms. These declines are yet to flow to pump prices. And domestic gross retail margins stand at 13-month highs, giving scope for pump prices to fall further. It is not unrealistic to expect to see petrol prices falling to near $1.10 a litre in coming weeks. Much will depend on the meeting of OPEC+ oil nations starting in Vienna on Thursday. The other complication is that East Coast capital city discounting cycles are coming to an end. Traditionally it takes 18-22 days for pump prices to fall from highs to lows in the discounting cycle.
• Understandably profits stumbled over the September and December quarters, affected by global uncertainties and a softer domestic economy. But over the full 2019 year, profits hit record highs, up over 8 per cent on a year ago. Wages and sales were also up over the full calendar year.
• There are still no signs of a lift in inflation. But more positively job ads continue to lift, albeit modestly.
• Overall there is nothing in that latest data to prevent the Reserve Bank from cutting rates tomorrow.
What do the figures show?
• According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 9.3 cents to 136.8 cents a litre last week. The metropolitan price fell by 12.7 cents to 134.0 cents a litre and the regional price fell by 2.4 cents to 142.6 cents a litre.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down 16.7 cents to 132.7 c/l), Melbourne (down by 16.3 cents to 132.7 c/l), Brisbane (down by 19.3 cents to 130.0 c/l), Adelaide (up by 0.2 cents to 143.4 c/l), Perth (down by 0.6 cent to 134.1 c/l), Darwin (down by 0.3 cents to 136.4 c/l), Canberra (down by 0.4 cents to 144.4 c/l) and Hobart (up by 0. cents to 154.7 c/l).
• The smoothed gross retail margin (2-month rolling average) for unleaded petrol rose from 15.94 cents a litre to a 13-month high of 16.26 cents (24-month average: 13.2 cents a litre).
• The national average diesel petrol price fell by 0.5 cents to 147.5 cents a litre over the past week. The metropolitan price fell by 0.5 cents to 146.3 cents a litre and the regional price was down by 0.5 cents to 148.4 cents a litre.
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 125.9 cents a litre, down by 1.3 cents over the week. The terminal gate diesel price stands at 126.2 cents a litre, down by 2.3 cents over the past week.
• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 127.3c; Melbourne 128.3c; Brisbane 127.1c; Adelaide 128.9c; Perth 126.3c; Canberra 144.3c; Darwin 136.3c; Hobart 154.8c.
• The key Singapore gasoline price fell by US$9.70 or 14.6 per cent last week to US$56.80 a barrel. In Australian dollar terms, the Singapore gasoline price fell by $13.62 or 13.5 per cent to $87.06 a barrel or 54.76 cents a litre.
Business Indicators – December quarter
• Company operating profits fell by 3.5 per cent in the December quarter to be up 2.3 per cent on the year.
• Profits fell in 7 of the 15 industry groups in the December quarter. Profits rose most Arts and recreation services (up 18.7 per cent) from Transport, postal and warehousing (up 4.0 per cent). Profits fell the most in Financial and insurance services (down 23.8 per cent) from Mining (down 8.0 per cent).
• In 2019, profits totalled a record $383.3 billion, up 8.1 per cent on the year.
• In rolling annual terms, mining operating profits rose by 19.6 per cent for the year to December to a record high of $156 billion. Non-mining profits rose by 1.4 per cent to a record $227.3 billion.
• Inventories rose by 0.3 per cent in the December quarter after a 0.2 per cent fall in the September quarter. Inventories will add 0.2 percentage points to quarterly economic growth. Two of the six industry sectors posted gains in inventories led by Mining (up 8.5 per cent).
• Real sales rose in 8 of the 15 industry sectors in the December quarter. Sales rose the most in Financial and insurance services (up 3.4 per cent) followed by Rental, hiring and real estate services (up 2.6 per cent). Electricity, gas, water and waste services sales fell by 4.0 per cent with Construction down by 1.7 per cent.
• The total real value of sales fell by 0.1 per cent in the December quarter to be up 0.6 per cent over the year. Over the full year to December, sales were up 0.7 per cent on a year earlier (decade average 1.5 per cent).
• In current prices, sales rose by 3.8 per cent in the twelve months to December (decade average 3.3 per cent).
• In current prices, sales rose in three states and territories in the December quarter: NSW (down 0.8 per cent), Victoria (up 1.1 per cent), Queensland (down 0.1 per cent), South Australia (down 1.1 per cent), Western Australia (down 1.7 per cent), Tasmania (up 2.7 per cent), Northern Territory (down 0.8 per cent) and ACT (up 4.7 per cent).
• Wages & salaries (includes changes in wages and employment) rose by 1.0 per cent in the December quarter to be up 5.0 per cent on the year (decade average 3.6 per cent).
• ANZ job advertisements rose by 0.7 per cent in February after rising by 4.0 per cent in January. Ads were down by 10.2 per cent over the year to 151,146.
• The Melbourne Institute monthly headline inflation gauge fell by 0.1 per cent in February. The annual growth rate fell from 1.8 per cent in January to 1.6 per cent in February. The smoothed 12-month annual average of the gauge is at 1.66 per cent in February – just above the slowest growth rate in 2½ years.
• The trimmed mean gauge also fell by 0.1 per cent in February to be up 1.6 per cent from a year ago – below the Reserve Bank’s 2-3 per cent underlying inflation target.
What is the importance of the economic data?
• 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 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.
• 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.
• Melbourne Institute have developed a monthly inflation indicator to give markets and policy makers a monthly update on inflation trends. Based on the ABS methodology for calculating the quarterly consumer price index, the Melbourne Institute Monthly Inflation Gauge estimates month-to-month price movements for a wide-ranging basket of goods and services across the main capital cities of Australia. This report is produced monthly and is released with a lag of one month.
What are the implications for interest rates and investors?
• Financial market pricing suggests that the Reserve Bank is all but certain to cut rates tomorrow by 25 basis points. In fact pricing suggest that a 50 basis point move can’t be ruled out.
• The fall in petrol prices will boost consumer spending power – arguably more important in serving to boost spending than an interest rate cut.