Data on Australian business inventories provided an upside surprise ahead of the GDP growth figures for the March quarter, due to print tomorrow. Private non-farm inventories look to have added 1ppt to quarterly GDP, helping to offset weakness in other components; however, a subdued growth outcome in the order of 0.2% is forecast.
The Business Indicators series for the March quarter was generally reflective of a weak growth backdrop. Headwinds to the consumer from cost of living constraints and higher interest rates saw sales growth contracting (-0.7%) for the third time in the past 4 quarters. As a result, annual sales growth (-0.7%) fell to its weakest pace (outside of the pandemic period) since the financial crisis in 2008/09.
The industry picture for sales growth showed broad-based weakness. The one exception was arts and recreation (3.7%), likely reflecting the boost from major events including the Taylor Swift Eras Tour, Pink concerts, and the Australian Open tennis. By contrast, other areas of discretionary demand - hospitality and retail - were weak.
Despite the weakness in sales growth, firms rebuilt inventories during the quarter (1.3%). This comes after a drawdown in 2023 that subtracted around 1ppt from GDP growth. In Q1, inventories were up across retail (2.4%) and wholesale trade (1.4%) and manufacturing (0.5%), with mining also advancing (1.5%). This more than offset declines in hospitality (-4.9%) and utilities (-0.6%). Overall, Q1's rebuild is expected to see private non-fram inventories adding 1ppt to quarterly growth.
Company profits took a 2.5% hit in the quarter coming in at $137.4bn (-8.6%Y/Y). This was driven by a 6.1% fall in mining profits on lower commodity prices, unable to be mitigated due to non-mining profits rising modestly (0.6%). Note that in tomorrow's National Accounts, company profits are likely to come in around flat on the quarter (0.1%), taking into account an adjustment for inventory valuations.
The wages and salaries bill slowed further in Q1 (0.6%) as the year-ended pace moderated from 8% to 6.6%. The labour force data through the first quarter reported that employment reaccelerated, but hours worked were near flat. Also factoring into the slowdown is that the labour market has moved off peak levels of tightness from the second half of last year.
