Record profits; Wages bill lifts; Petrol prices ease
Business Indicators; Job Ads; Inflation gauge; Fuel prices

Profits: Company operating profits rose for the eighth straight quarter, up by 4.5 per cent in the June quarter. Profits were up 12.5 per cent on the year. Mining profits were at record highs.

Sales: Over the year to June, real sales were up 1.0 per cent on a year earlier, below the decade average of 1.5 per cent.

Wages: Wages & salaries (includes changes in wages and employment) rose by 1.4 per cent in the June quarter to be up 4.7 per cent on the year (decade average 3.6 per cent).

Job advertisements: ANZ job advertisements fell by 2.8 per cent in August after rising by 5.7 per cent in June and July (in aggregate). Ads were down by 11.4 per cent over the year to 156,978.

Inflation: The Melbourne Institute monthly headline inflation gauge was flat in August. The gauge’s annual growth rate eased from 1.8 per cent in July to 1.7 per cent in August. The trimmed mean gauge was also flat in August. And the gauge’s annual growth rate decelerated from 1.9 per cent in July to 1.7 per cent in August – below the Reserve Bank’s 2-3 per cent underlying inflation target.

Petrol: According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 2.7 cents in the past week to 138.6 cents a litre as the discounting cycle continued in Sydney and Brisbane.

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?

• The latest batch of economic data released today was mixed, suggesting that Wednesday’s annual economic (GDP) growth print could be the weakest in a decade at around 1.4 per cent in the June quarter. The inventory drawdown, in particular, will detract from growth.

• The Aussie economy remains sluggish with still-tepid business and consumer confidence despite recent stimulus from the Reserve Bank and Federal government. Clearly more policy work needs to be done to boost growth.

• That said, corporate profits were at fresh record highs in the June quarter, boosted by the anticipated ‘sugar-hit’ from the mining sector courtesy of rising commodity prices.

• While workers’ wage growth is sluggish, Aussie firms’ wage bills are growing at a faster pace than the decade average, reflecting a still-solid labour market.

• But the retracement in job ads in August will create headaches for policymakers in Martin Place who meet tomorrow to determine the direction of interest rates. Ads had risen by 5.7 per cent in the two previous months.

• Petrol prices continued to fall last week, led lower by falling unleaded petrol prices in Sydney and Brisbane. Motorists are advised to fill up now as prices are near the bottom of the cycle in these cities. Pump prices are beginning to ease in Melbourne, but drivers should delay buying or top up now with prices likely to fall further.

What do the figures show?

Business Indicators

• Company operating profits rose for the eighth straight quarter, up 4.5 per cent in the June quarter. Profits were up 12.5 per cent on the year.

• Profits rose in 10 of the 15 industry groups in the June quarter. Profits rose most in Arts and recreation services (up 11.5 per cent), followed by Mining (up 10.9 per cent) and Professional, scientific and technical services (up 6.5 per cent. But profits fell for Electricity, gas, water and waste services (down 11.3 per cent), Financial and insurance services (down 5.1 per cent) and Information media and telecommunications (down 4.7 per cent).

• In the year to June, profits hit a record high of $371.8 billion, up 10.9 per cent on a year earlier.

• In rolling annual terms, mining operating profits rose by 26.4 per cent for the year to June to a record high of $146.4 billion. Non-mining profits rose by 2.7 per cent to a record $225.3 billion.

• Inventories fell by 0.9 per cent in the June quarter after a 0.8 per cent lift in the March quarter. Inventories will detract 0.6 percentage points from economic growth.

• Real sales rose in 9 of the 15 industry sectors in the June quarter. Sales rose the most for Mining (up by 4.0 per cent), followed by Other Services and Professional, scientific and technical services (both up by 1.5 per cent) and Accommodation and food services (up by 1.3 per cent). Sales fell by the most for Electricity, gas, water and waste services (down by 3.0 per cent), Wholesale trade (down by 1.6 per cent) and Manufacturing (down by 0.6 per cent).

• The total value of sales rose by 0.1 per cent in the June quarter to be up 0.7 per cent over the year. Over the full year to June, sales were up 1.0 per cent on a year earlier (decade average 1.5 per cent).

• In current prices, sales rose by 5.4 per cent in the year to June (decade average 3.0 per cent).

• In current prices, sales rose in six states and territories in the June quarter: NSW (up 0.6 per cent), Victoria (up 0.8 per cent), Queensland (up 1.2 per cent), South Australia (up 0.6 per cent), Western Australia (up 4.8 per cent), Tasmania (up 5.2 per cent), Northern Territory (down 5.8 per cent) and ACT (down 1.4 per cent).

• Wages & salaries (includes changes in wages and employment) rose by 1.4 per cent in the June quarter to be up 4.7 per cent on the year (decade average 3.6 per cent).

Job advertisements

• ANZ job advertisements fell by 2.8 per cent in August after rising by 0.8 per cent in July and 4.9 per cent in June. Ads were down by 11.4 per cent over the year to 156,978.

Inflation

• The Melbourne Institute monthly headline inflation gauge was flat in August. The gauge’s annual growth rate eased from 1.8 per cent in July to 1.7 per cent in August. The smoothed 12-month annual average of the gauge is at 1.78 per cent – the slowest growth rate in over two years.

• The trimmed mean gauge was also flat in August. And the gauge’s annual growth rate decelerated from 1.9 per cent in July to 1.7 per cent in August – below the Reserve Bank’s 2-3 per cent underlying inflation target.

Petrol prices

• According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 2.7 cents in the past week to 138.6 cents a litre. The metropolitan price fell by 3.0 cents to 138.0 cents a litre and the regional price fell by 1.9 cents to 139.9 cents a litre.

• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 12.0 cents to 131.4 c/l), Melbourne (up by 13.7 cents to 148.8 c/l), Brisbane (down by 10.9 cents to 130.8 c/l), Adelaide (down by 18.0 cents to 134.0 c/l), Perth (down by 0.3 cents to 138.9 c/l), Darwin (down by 0.1 cent to 138.8 c/l), Canberra (down by 0.1 cent to 141.7 c/l) and Hobart (down by 0.2 cents to 151.2 c/l).

• The smoothed gross retail margin for unleaded petrol fell from 11.51 cents a litre to 11.08 cents a litre last week – the lowest level in 4 months (24-month average: 13.1 cents a litre).

• The national average diesel petrol price fell by 0.3 cents a litre to 146.9 cents a litre over the week. The metropolitan price fell by 0.3 cents to 145.4 cents a litre and the regional price fell by 0.2 cents a litre to 148.2 cents a litre.

• MotorMouth records the following average retail prices for capital cities today: Sydney 128.7c; Melbourne 148.6c; Brisbane 129.1c; Adelaide 139.1c; Perth 129.4c; Canberra 141.6c; Darwin 138.8c; Hobart 151.2c.

• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 129.2 cents a litre, down by 0.2 cents over the week. The terminal gate diesel price stands at 134.3 cents a litre, down by 0.5 cents over the past week.

• Last week, the key Singapore gasoline price rose by US$1.38 or 2.0 per cent to US$70.53 a barrel. In Australian dollar terms, the Singapore gasoline price rose by $2.63 or 2.6 per cent to $104.99 a barrel or 66.03 cents a litre.

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?

• Inflation remains contained, so the Reserve Bank can ‘go for growth’ – cut interest rates in an attempt to get more people in work and boost confidence. That said, concerns about reflating asset (home) prices due to elevated household debt remain.

• Companies are continuing to make profits and boost sales, however, outcomes vary widely across industries. Trading conditions are challenging making it difficult to convince business owners to invest and hire.

• The Commonwealth Bank Group expects two further rate cuts in November 2019 and February 2020.

Published by Craig James, Chief Economist,CommSec