Australia's business activity data for the June quarter point to inventories weighing on GDP growth; however, an uptick in sales indicates demand may have rediscovered some form. Meanwhile, details around incomes were on the soft side, growth in the wages bill slowed to 1% for the quarter and company profits contracted (2.4%) on a headline basis.
In a positive sign for demand in the domestic economy, sales volumes lifted by 0.5% in the June quarter - their strongest rise since the March quarter of 2023. Sales advanced in most categories, with notable gains in consumer-related areas: hospitality 1.7%, arts and recreation 1.3% and retail 0.8%. By contrast, a very weak result came through for construction (-2.6%).
Amid a backdrop of rising sales, inventory levels were held broadly flat (0.1%) across the quarter. Wholesale (-1.7%) and retail inventories (-0.5%) were run down in Q2. Those declines were offset as inventories in utilities (6.9%) and in the mining sector (4.8%) advanced. Because the change in inventories this quarter was much smaller than in the March quarter (1.2%), the read-through to GDP growth in the June quarter is negative. Private non-farm inventories are expected to weigh on growth by 0.4ppt. The total contribution from inventories to quarterly GDP growth will be known tomorrow when details for public sector inventories are published.
In terms of incomes, company profits surprised to the downside falling by 2.4% in the June quarter against expectations for a 1.2% increase. Profits were down 3.3% through the year. A different accounting methodology for inventories is adopted in the national accounts however, and if that adjustment is made, company profits overall were essentially steady ticking up by just 0.1% to $127bn (-3.3%Y/Y).
According to today's report, mining sector profits contracted by 0.5% in Q2 while the non-mining sector saw a 3.5% fall. The impact of lower commodity prices has weighed on mining sector profits that are down 11.6% for the year. Although, non-mining sector profits have been rising in recent years, the pace of growth has been weighed by cost pressures and soft demand.
Income from wages saw slightly slower growth in the June quarter rising by 1% - though annual growth held steady at 5.8%. The ABS's Labour Force Survey reported that employment growth was actually stronger in Q2 than the previous two quarter, while growth in hours worked was broadly similar this quarter to last. Unsurprisingly, wage incomes over the past year have risen strongest in healthcare and social assistance (10.3%), reflecting the concentration of employment growth in the sector.
