GDP expectations weaken

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From Westpac:

The Business Indicators survey provides an estimate of business inventories and a partial update on incomes.

Inventory levels advanced a little in the quarter, +0.4% vs market median flat & Westpac -0.2%.

The impact on GDP relative to our priors is minimal.

Inventories will add a (strong) 0.1ppt to Q1 GDP, whereas we anticipated a (soft) 0.1ppt addition.

Company profits contracted by 4.7%, much weaker than anticipated (mkt median +0.4% & Westpac -0.5%)

The national accounts estimate is unlikely to be as weak as this headline figure – but nonetheless will be softer than anticipated.

We note that allowing for the inventory valuation and excluding the finance sector, the adjusted non-financial sector profits number is -2.5%.

Mining profits slumped 9.6%, a decline well in excess of the fall in commodity prices

Non-mining profits (ex-finance) also weakened in the quarter, -1.4%, with weakness centred on manufacturing, which saw a reversal of recent gains.

Wages and salaries (i.e. the wages bill) rose 0.6% in the quarter, broadly meeting our expectations. Employment, on a mid-month of quarter basis, was a +0.5%.

Implications for Q1 GDP

Our forecast for Q1 GDP is 0.6%qtr, 2.7%yr

Although, profit weakness suggests that the risks to this number are skewed to the downside.

Tomorrow, net exports and public demand data will be released, following which we will review our GDP forecast.

This is ahead of the National Accounts on Wednesday. For further detail, see our GDP preview bulletin of last Friday.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.