From Westpac:
Australia, Q3 business indicators highlight sluggish economy and inventory drag.
Profits and wages highlight a sluggish economy with inventories representing a larger drag than expected.
The Business Indicators survey provides an estimate of business inventories and partial information on incomes (both employee earning and company profits). This latest update was weaker than we had expected which highlights ongoing sluggish economic conditions.
Inventories fell by 0.5% in Q3, following a 0.4% rise in Q3. This will have inventories being a drag on growth subtracting about 0.2ppts to Q3 GDP growth, we were forecasting a 0.1ppt drag.
Company profits did rise in the in the quarter, up 3.9% compared with our forecast for a 0.3% rise and the market consensus for a 1.0% rise.
This was due to a solid 5.0% rise in mining profits (due in part to a large positive inventory revaluation but more on that later), and a welcomed 2.7% rise in construction profits. Outside a 4.6% rise in arts and recreation services profits were broadly weak.
On our calculation, which takes into account the inventory valuation adjustment, profits were broadly weak falling 0.7%qtr. Unincorporated (i.e. small business) profits declined, down 6.3% in Q3.
Wages and salaries (i.e. the wages bill) expanded by 0.7% in Q3. Annual nominal wage income growth is now only 3.1%, still well down from a peak of almost 8% in 2011 Q3.
Sluggish wage income growth appears to still be a constraint on consumers’ spending power.
We estimate that the income measure of GDP rose only modestly in in Q3, not much more than 0.1%qtr based upon the limited information available in this survey.
Clearly, the larger than expected drag from inventories and the much weaker than expected GDP(I) estimate from today’s data, we see downside risks to our current forecast for Q3 GDP growth of 0.7%qtr/2.5%yr.
Public demand and net exports data will be released on Tuesday, ahead of the national accounts on Wednesday. We will wait for those pieces of information before finalising our forecast.
