Third quarter Australian business inventories contracted sharply by 1.9% amid the constraints caused by global supply chain pressures and extended lockdowns domestically. Sales plunged as spending opportunities were restricted, though fiscal support and strength in commodity prices saw company profits, on aggregate, rise in the quarter. A decline in wages in Q3 reflected the disruption in the recovery in the labour market from the lockdowns.
- Inventories declined by 1.9%q/q to $168.9bn; a significant downside surprise on the median forecast for a flat outcome. Through the year growth in inventories eased to 0.7% from 2.4%.
- Company gross operating profits were 4% higher in Q3 (vs 2.3% exp) at around $123bn, holding annual growth at 5.4%.
- Wages and salaries contracted by 0.8% in the quarter to $152.7bn, cutting annual growth to 4.7% from 8.2%.
- Sales contracted by 3.5%q/q due to the Delta lockdowns and by -3.9%q/q in the non-mining industries.
Business Indicators — Q3 | The details
The return of extended lockdowns across large parts of the nation over the winter was a significant shock for Australian businesses. Social distancing measures restricted spending opportunities and business sales plunged back below pre-pandemic levels as a result. However, governments ramped up fiscal support in response as occurred in 2020.
Inventory levels contracted sharply relative to market expectations, down 1.9%q/q vs the median estimate for a flat outcome. The sharp fall in sales and the pressures in global supply chains from product shortages and delays in delivery times hit production and led to both wholesaler (-4.4%) and manufacturing (-1.3%) inventories driving the overall decline.
Retail and hospitality demand had been incredibly strong going into Q3. But with restrictions now curbing that demand, inventory levels in these industries were no longer being run down. Retail inventories were up 0.8%q/q and accommodation and food services lifted by 2.6%. This accumulation of stock will currently be helping to meet the rebound in household spending during this reopening phase in Q4.
Turning to profits, gross company profits increased by 4.0% in the quarter, supported by government transfers as sales were falling throughout the lockdowns. Profits were stronger again if adjusted for changes in inventory valuations (national accounts use a similar methodology), up 4.6% in the quarter. Non-mining profits had been retracing from the high levels seen in 2020 over recent quarters as fiscal supports were being withdrawn. This retracement was halted in Q3 as non-mining profits advanced by 2.5%, the first quarterly rise recorded in a year.
However, the industries most affected by the lockdowns saw profits decline, with the fiscal support attenuating the magnitude of the fall in these cases. Profits were down in accommodation & food services (-12.5%), transport (-12.7%), other services (-5.8%), retail trade (-1.5%) and arts & recreation (-1.2%). Profits lifted sharpest in construction (19.7%), professional services (17.2%) and manufacturing (10.3%). Mining profits lifted by a further 5.7%q/q, surging to be almost 68% higher through the year driven by elevated commodity prices.
Wages and salaries paid declined by 0.8%q/q contracting for the first time since Q2 2020. Restrictions on trade led to a fall in employment and a loss in hours worked, which drove sharp declines in wages paid in the quarter in accommodation & food services (-23.5%), arts & recreation (-22.9%), other services (-6.4%) and retail trade (-4.5%).
Business Indicators — Q3 | Insights