Business Indicators — Q4 | By the numbers
- Inventories lifted by 0.3% in Q4 to $165.4bn; an upside surprised on consensus for a 0.1% fall (prior rev: -0.2%). In annual terms, inventories remained soft at -0.2% from -0.7% in the previous quarter.
- Company gross operating profits fell by 3.5% to $94.1bn in Q4, which was larger than the 1.3% decline anticipated (prior rev: -0.6%). As a result, annual growth slowed from 9.9% to 2.3%.
- Wages and salaries growth lifted by 1.0% in Q4 (prior rev: +1.1%), as annual growth edged up from 4.8% to 5.0%.
Business Indicators — Q4 | The details
Australian firms lifted inventories slightly by 0.3% in the December quarter, but this came after reductions in Q2 (-1.0%) and Q3 (-0.2%). Inventories contributed 0.1ppt to overall activity in Q3 and look set to add a touch more in Q4. On a year earlier, inventories contracted by 0.2% in an operating environment where sales have been weak (-0.1%qtr, +0.6%yr). In the December quarter, inventories were driven by mining (8.5%) and utilities (5.3%) amid weakness from accomodation and food services (-1.7%), retail trade (-1.4%), manufacturing (-0.5%) and wholesale trade (-0.3%).
On a headline basis, gross company profits fell by 3.5% in the quarter, with annual growth stepping down from 9.9% to 2.3%. However, to be consistent with the methodology in the National Accounts, this needs to be adjusted for changes in the value of inventories. After that adjustment is made, company profits were down by a smaller 1.7% in the December quarter. The mining sector drove this overall decline as commodity prices corrected from highly elevated levels, with gross profits falling by 8.0% in Q4 slowing annual growth from 23.4% to 4.7%. Non-mining sector gross profits declined by 0.2% in the quarter and were soft over the year (0.8%).
Wages and salaries lifted by 1.0% in the quarter, which was a touch softer than in the previous 3 quarters as employment growth based on the ABS's Labour Force Survey slowed over the final months of 2019 (0.3% from 0.6% in Q3) and hours worked also eased (0.4% from 0.9% in Q3), though the annual pace edged higher from 4.8% to 5.0%. Healthcare (0.8%qtr, 11.5%yr) remains the standout sector, reflecting strong employment growth.
Inventories are likely to add in the order of 0.2ppt to GDP growth in Q4 following on from a 0.1ppt contribution in Q3. The income side of the economy will take a hit from a deterioration in the terms of trade in response to falls in key commodity prices, though will be moderated by the ongoing growth in wage incomes.
Business Indicators — Q4 | Insights
