The September quarter looks to have been another robust one for Australian businesses as household demand remained resilient to cost-of-living pressures, rising interest rates and weak sentiment. An easing in weather-related disruptions likely supported a rebound in resources sector production, driving a stronger-than-expceted rise in inventories. A retracement in commodity prices and margin pressures, however, weighed on profits.
- Inventories incresed by 1.7% in the September quarter to $184.2bn, stronger than expected (1%) and up from Q2's 0.5% rise. Inventories expanded by 7.9% through the year.
- Company gross operating profits pulled back from record highs, down 12.4% in the quarter to $132.2bn, a large downside surprise on expectations (-1.5%) but were still 8.5% higher over the year.
- Wages and salaries lifted by a further 2.9% in Q3 to $168.9bn to be 11% higher through the year.
- Sales increased by 1.1% in the September quarter following rises of 1% in the previous two quarters, driving up volume growth by 7.3% over the year.
Business Indicators — Q3 | The details
Today's report for the September quarter showed that Australian businesses are continuing to experience resilient demand, but profits declined amid a combination of lower commodity prices and margin pressure in a high inflation environment.
Eased supply and weather-related disruptions look to have boosted inventories in the quarter; the mining sector posted a 10.7% surge in inventories after persistent wet weather weighed on production in recent quarters. There was also a notable rise in retail inventories (4.4%) following a decline in Q2 (-1.1%). Wholesale inventories fell for the first time in a year (-1.3%) but those volumes are up almost 7% on pre-pandemic levels.
Sales volumes reflected the resilience of demand rising by 1.1%q/q, a touch stronger than the 1% rise in each of past two quarters. Excluding the mining sector, sales advanced by 1%q/q on the back of similar increases in Q2 (1.0%) and Q1 (1.2%). The underlying picture pointed to solid household demand continuing with sales up in retail (1.3%), accommodation and food (3.4%) and transport (3.6%), which includes travel.
Overall, sales volumes have risen to 5% above their pre-pandemic level whereas invetories are up by 3.9%. That excess demand has been a factor contributing to the rise in inflation in Australia.
Company profits were down sharply in the quarter by 12.4% driven largely by a fall in mining profits (-19.1%) as commodity prices pulled back from very elevated levels. However, adjusted for changes in the value of invetories (a similar approach to the national accounts), company profits were down by a much smaller 4.6% in the quarter.
Non-mining sector profits were also lower, down 4.5% in Q3 where the main factor is likely to be margin pressure due to high inflation in business operating costs. That looks to be the case in the construction industry (-2.5%q/q) reflecting the higher costs for materials and labour.
The national wages bill rose solidly by 2.9% in the quarter, though that was softer than in Q2 (3.4%) as the pace of hiring slowed. Wage costs surged by 11% from a year earlier when the economy was hit by lockdowns during the Delta wave of Covid-19, reflecting strong rebounds in employment and hours worked as the pandemic has dissipated. Another driving factor has been increased bonus payments and more hours worked at overtime rates as the labour market has tightened.
Business Indicators — Q3 | Insights
The detail in today's report indicates inventories are likely to have added to GDP growth in Q3, potentially by around 0.5ppt — though this component can often surprise in the national accounts. More broadly, the themes in the business indicators release are consistent with more frequent business surveys. Demand has been robust, inventories have been rebuilt as supply chain pressures have eased, but rising input costs have squeezed profit margins.
