Australia's Business Indicators data for the June quarter reported that the rebuild in inventories from last year's recession stalled unexpectedly, but company profits and wages continued to advanced on strength in commodity prices and a widening reopening. The return to lockdowns has since shifted things significantly.
- Inventories were broadly flat in Q2, rising by 0.2% to $168.5bn; a sizeable miss on the 1.2% rise expected. Annual growth lifted from -0.7% to 2.4% on base effects.
- Company gross operating profits advanced by 7.1% to $118.3bn (vs a 2.5% increase expected), though annual growth slowed to 5.5% from 11.7%.
- Wages and salaries posted a rise of 2.0% in the quarter to $153.7bn as growth through the year surged from 2.7% to 8.1%, with the base period going back to the depths of last year's lockdowns.
Business Indicators — Q2 | The details
The rebuild in inventories by Australian businesses from the COVID recession stalled in the June quarter, rising by just 0.2% against a 1.2% increase expected. This followed the 2.4% lift posted in Q1 that added 0.7ppt to quarterly GDP, pointing to a reversal in the June quarter. Notably, retail (0.6%) and wholesale (-0.7%) inventories posted soft outcomes after surging higher in Q1; +7% for the former and +4% for the latter. Manufacturing (-0.1%) saw a third consecutive quarterly fall. Firms in accommodation and food services (10.5%) continued to add back capacity to meet demand with restrictions easing, but this was all prior to the Delta outbreaks. Overall, inventories remain around 2% below pre-pandemic levels and are now subject to considerable lockdown and reopening swings. This could turn out to put upward pressure on prices when the reopening comes if supply/demand imbalances are significant enough.
Gross company profits lifted by 7.1% for the quarter to $118.3bn to be up 5.5% through the year. Adjusting for inventory valuation effects, company profits were 6% higher in Q2 ($113.1bn). The key dynamic was the surge in mining profits (18.4%qtr, 43.4%yr) on the back of elevated commodity prices. Non-mining profits declined for a third consecutive quarter (-1.1%) and were sharply down through the year (-14.3%). The onset of the pandemic saw significant cash flow support being channeled from government to businesses, such that company profits surged over the first half of last year, coinciding with the COVID recession. With that support being withdrawn and the reopening boost fading, profits in the non-mining sector were moderating back to their pre-pandemic trajectory.
Sales across the industries are shown in the chart below. The annual rates are boosted by base effects and are most pronounced in COVID-exposed areas (accommodation and food, arts and recreation, transport (includes travel) and other services). In Q2, sales moderated in retail (0.8%) but were well above pre-pandemic levels. The rebound in services areas continued in Q2, with accommodation and food 2.4% and arts and recreation 0.3%, but both were still well below pre-pandemic levels. The exception was other services, up 2.5% in Q2 and 2.1% above its end 2019 level.
The rebounding labour market and strong employment outcomes supported a 2.0% rise in the wages bill in Q2 to be 8.1% above last year's depths. Wages paid recovered to be well above pre-pandemic levels in most industries but were still lagging in those most impacted by COVID; arts and recreation (-4.5%), transport (-1%) and accommodation and food (-0.9%). The strongest industries relative to pre-COVID are finance and insurance (13%), healthcare (11.7%) and real estate (11.4%).
Business Indicators — Q2 | Insights
