Australia's Business Indicators report for the June quarter was consistent with a backdrop of softening domestic demand. Going into Q2's National Accounts on Wednesday, inventories are set to weigh notably on the GDP outcome, while business profits were down sharply in the quarter.
Sales volumes across the economy contracted by 0.3% in the June quarter; outside of Covid lockdown periods, this was the weakest outcome for quarterly sales since Q3 2016. Beneath the surface, the picture of demand is more nuanced, with cost-of-living pressures and higher interest rates weighing heavily on some sectors - such as manufacturing (-2%), wholesale trade (-3.4%), finance and insurance (-1.8%), and retail (0%) - as others displayed resilience, including transport (3.3%), arts and recreation (1.0%), and hospitality services (0.4%).
Broadly speaking, a large drawdown on inventories in the quarter (1.9%q/q) appears consistent with this softer demand backdrop, with firms not having to restock. On rough estimates, this outcome maps to a 1ppt deduction from Q2 GDP. Sector volatility may, however, accentuate the weakness, with mining -5.2% - potentially on disruptions - and wholesale -2.3% - pulling back after a delayed harvest due to flooding boosted gain production in Q1. Retail inventories fell 2.1% in the quarter, consistent with slowing consumer demand.
Gross company profits saw a large decline of 13.1% in the June quarter, or -11.8% after adjusting for inventory valuation effects. The fall was driven by a 21.3% retracement in mining profits as commodity prices declined. Profits across the non-mining sector were down 5% quarter-on-quarter, with weaker demand and margin pressures the likely headwinds.
The positive is that labour market conditions remain resilient to the broader slowdown; elevated job vacancies suggest that strong demand for employees may see the labour market holding up for longer than in past slowdowns. Wages and salaries expanded by 1.8% in the quarter to be up 9.9% through the year.
