The ABS has released quarterly business indicators, which are an input into GDP, here is Westpac’s take:
The Q4 survey provided surprises in both directions. Inventories surprised to the downside. By contrast, incomes surprised to the upside – both wages and profits (on an adjusted basis).
Our forecast for Q4 GDP remains 0.9%qtr, 2.7%yr. The market is at 0.7%qtr. Public demand and net exports data to be released tomorrow will provide further guidance as to the risks surrounding our forecast.
With growth lopsided in the quarter there are conflicting signals, leading to a greater than usual degree of uncertainty.
The level of business inventories declined by 0.5%, which means inventories are neutral for Q4 GDP. That is weaker than anticipated. Expectations were for a flat result and an associated contribution to growth of 0.2ppts.
Company profits increased by 1.7%, falling short of expecations (market median 2.0% and Westpac 2.8%).
However, profits on an adjusted basis, surprised to the upside.Profits, adjusted for inventory valuations, jumped 6.0% in the quarter. IF, that were to be repeated in the natinonal accounts, profits would add 1.1ppts to GDP.
We had expected to see some resilience in profits in the face of mixed conditions. Mining profits are climbing on strong export volume growth associated with expanding capacity. Across the broader economy, profits will have been supported by a strengthening of consumer spending (retail sales and perhaps services), weak wages growth and potentially some margin widening.
Wages and salaries (i.e. the wages bill) expanded by 1.1qtr. This is considerably stronger than suggestd by labour market indicators. Employment was flat in the quarter, hours worked contracted by 0.3%, and wages growth is relatively soft, with the WPI up 0.7%qtr, 2.6%yr in Q4.
We note that this wage income series, and the national accounts measure, includes redundancy payments. This raises the possibility that any lift in such payments may have boosted wage incomes late in 2013.
Unincorporated (i.e. small business) profits declined by 0.9%.
