Key inputs for December quarter GDP growth from Australia's Business Indicators report came in above expectations. Inventories (barring an offsetting movement from public authorities) will add to growth in Q4, while company profits rebounded by 5.9%.
Sales volumes lifted by a modest 0.3% in the December quarter, matching the increase from the previous quarter. Those outcomes saw sales rise by 0.6% across the back half of the year, an improvement from a 0.3% contraction in the first half. The focus going into Wednesday's GDP figures for Q4 is around the consumer. On that front, retail sales increased by 0.8% - their strongest quarterly rise in more than a year on the back of robust spending through the Black Friday sales. But households pulled back in arts and recreation spending (-0.7%) following a strong increase in the sector in Q3 (3.2%). Overall, demand is patchy as households are in a mood where they are spending selectively.
Inventories were a modest upside surprise rising by 0.1% in Q4 (vs 0% expected). Swinging from a 0.7% fall in Q3, private non-farm inventories are estimated to contribute 0.3ppt to GDP growth in Q4. Details around public sector inventories will come to hand tomorrow. The broader picture is that inventories were built up over the first half of the year rising by 2%, stocks that were then run down over the second half (-0.7%). This was most evident in the retail and hospitality sectors.
Company profits saw a sharper than expected rebound in Q4 lifting by 5.9% against the 1.8% increase forecast. After adjusting for inventory valuation changes, profits rose by 3.2% for the quarter. Company profits rose across the board: mining sector profits up by 6%q/q on the back of an uptick in commodity prices, while non-mining profits lifted by a similar magnitude of 5.9%q/q, rebounding from a 1.6% decline in Q3.
With labour market conditions remaining strong into year-end, the wages bill increased at a 1.4% pace in the final quarter. Base effects saw annual growth tick up from 4.1% to 4.7%. The wages bill is running faster than the headline pace in several industries, but interestingly health care - the industry that has been driving employment growth - is not one of them (4.7%Y/Y).
