The economic recovery from the pandemic crisis was reflected in today's ABS Business Indicators data for the December quarter. Inventories had stabilised over the second half of the year, while growth in company profits pulled back on the tapering of government transfers and the wages bill lifted further as the labour market continued to improve.
Business Indicators — Q4 | By the numbers- Inventories came in flat Q4 at $164.3bn, broadly in line with consensus (0.1%), leaving the annual pace down by 4.6% through the year (from -4.4%).
- Company gross operating profits pulled back by 6.6% to $109.7bn in Q4 reflecting the unwind from the earlier boost of government transfers, with the annual pace slowing to 15.1% from 18.6%.
- Wages and salaries advanced by a further 1.4% in Q4 to $147.6bn—in line with an improving labour market—to be marginally higher through the year (0.7% from 0.4%).
Business Indicators — Q4 | The details
Australian business inventories were flat in the December quarter after easing by 0.3% in the previous quarter. Over the second half of the year, inventory levels stabilised (-0.2%) after plunging during the first half (-4.4%) due to the shutdown and weak economic conditions. Over the period, the strongest rebounds have come in wholesalers (-3.3% in the first half to 3.1% in the second half), retailers (-9.9% to -1.6%) and accommodation and food services (-15.8% to -1.1%) with eased restrictions leading to demand returning.
Growth in gross company profits declined by 6.6% in the quarter but is sharply higher than a year earlier (15.1%). Adjusting for valuation changes in inventories (to make it more aligned with how company profits are measured in the national accounts), company profits fell by 8.1% in Q4. Government transfers through the JobKeeper policy and other cash flow measures shielded businesses during the worst of the pandemic such that company profits lifted by 3.0% in Q1 and then soared by 15.8% in Q2, rising 19.3% through the first half despite what was the nation's first major economic downturn since the recession of the early 1990s.
With the economy revived from shutdown over the second half, transfers have tapered resulting in gross profits falling by 3.5% over the second half. Mining profits surged in Q4 (11.5%) on rising commodity prices but are up 2.4% over the year, while profits ex-mining contracted 14.4% in the quarter but are still 23.7% higher through the year.
Beneath this though, many businesses, especially those in service sectors, were still trying to get back on their feet again over the second half of the year as they worked around the remaining restrictions after the earlier shutdown weighed significantly on sales. The reopening led to a rebound, albeit partial as the chart below highlights. Substitution of spending by households away from services to more goods-based consumption has strongly benefitted the retail sector on aggregate where sales advanced by 5.1% over the second half after a 2.1% decline for the first half.
The reopening was also crucial in supporting the recovery in the labour market. Wages and salaries collapsed by 3.3% in Q2 before rebounding by 2.5% in Q3. This progress continued into Q4 with the wages bill lifting another 1.4% to be 0.7% higher through the year, though this compares with a pre-pandemic pace of 5.0%Y/Y.
Business Indicators — Q4 | Insights