Australia’s business indicators come in strong in Q2

Australia’s business indicators came in generally strong in the second quarter, with inventories and profits rising moderately and wages growth rebounding from low levels. Company profits were more robust than anticipated in the second quarter. It rose 6.9 percent quarter-on-quarter. Adjusting for losses on inventories, the GDP measure of non-financial profits was consistent with expectations, growing 1.9 percent quarter-on-quarter.

Non-mining profits recovered strongly, while, mining profits increased robustly by 14 percent in sequential terms after falling by 9 percent in the first quarter. Non-financial, non-mining profits increased strongly by 3.5 percent, after declining for three straight quarters. There was mixed performance throughout industries, with manufacturing profits rising robustly by 23 percent and construction profits falling sharply by 28 percent. Small business profits declined 5.5 percent following a downwardly revised decline of 4.5 percent in the first quarter.

In the meantime, inventories were up 0.3 percent in the second quarter, whereas the first quarter inventories were revised down to a 0.4 percent drop from a 0.4 percent increase. This suggests that stocks would contribute 0.2 percentage points to the second quarter growth, noted ANZ in a research report.

Meanwhile, wages bill growth was up 0.8 percent in sequential terms, suggesting that the GDP measure of the wages bill might indicate a small step up in growth, added ANZ. With employment rising at about 0.3 percent in the quarter, it suggests a modest improvement in the GDP measure of the average wage rate in the economy. Significantly, the weakness in wages in the mining states appears to be waning.

“We see some upside risk to our Q2 GDP growth forecast of +0.3 percent q/q, although we will review our estimate after public demand and net exports figures are published tomorrow”, added ANZ.