Australian business profits lifted strongly in the December quarter as sales slowed in a patchy demand environment. Inventory levels declined slightly after a strong post-pandemic rebuild.
- Inventories declined by 0.2% in the quarter, broadly as expected (0% f/c), and expanded by 5.9% over the year.
- Company gross operating profits lifted by 10.6% in Q4, mostly rebounding from a fall in Q3 (-11.5%). Profits lifted by 16% through the year.
- Wages and salaries increased by a further 2.6% in the quarter, lifting the pace of growth over the year to 11.6%.
- Sales stalled in Q4 (0.1%) seeing their weakest outturn since the Delta lockdowns in 2021, slowing year-ended growth from 7.3% to 3.4%.
Business Indicators — Q4 | The details
Australian business conditions were mixed in the December quarter. Sales remained at a very elevated level - up 6% on their pre-pandemic level - but flatlined in Q4 (0.1%) after rising very strongly in the three previous quarters.
The underlying detail for sales was patchy. The mining sector saw a 2.6% lift, while the recovery from the pandemic continued to boost services including in hospitality (1.5%) and arts and recreation (3.2%). Other industries such as retail (-0.3%), wholesaling (-1.1%) and manufacturing (-1.4%) saw a cooling in demand, consistent with the rotation in demand to services.
Despite the soft quarter for sales, company profits rebounded strongly from a fall in Q3, with firms raising prices in response to margin pressures. Non-mining sales declined by 0.2% in the quarter, but profits increased by 9.6%. In the mining industry, sales lifted by 2.6% while profits jumped by 11.6% but after falling 17.3% in Q3. Company profits overall lifted by 10.6%, but after adjusting for inventory valuation changes, the rise was a little more than 6%.
Labour costs for firms remained on the rise. Wages and salaries lifted by 2.6% in the quarter, a strong pace but moderating from the high in Q2 (3.4%). That left wage costs up 11.6% over the year; this acceleration reflects the recovery in hours worked as the pandemic dissipated and very strong labour demand.
Inventory levels declined slightly in the quarter (-0.2%). This follows a very strong rebuilding effort over much of the past year as supply bottlenecks eased coming out of the pandemic. This will result in a drag on quarterly GDP from inventories.
Business Indicators — Q4 | Insights
A mixed picture of demand in the December quarter. The rebound from the pandemic is still supporting some areas of demand, though other industries are seeing softer demand. Firms have raised prices in response to margin pressures, which looks to have bolstered profits. Mining profits remain very elevated and will continue to support national income. Inventories are a negative for Q4 GDP, potentially taking as much as 0.8ppt away from growth, though the actual outcome can vary substantially from these estimates.