Company profits are growing at a healthy clip but September quarter economic growth may be slightly weaker than previously expected because of a fall in business inventories.
Company gross operating profits rose 4.8 per cent in the September quarter, following a 7.3 per cent rise in the June quarter, the Australian Bureau of Statistics reported on Monday
The ABS also said estimated business inventories – unsold stocks – in seasonal and price-adjusted terms, fell 1.1 per cent in the September quarter after a 1.6 per cent rise in the June quarter.
Economists were expecting inventories to have risen by 1.2 per cent in the September quarter.
RBC fixed income and currency strategist Michael Turner said the decline in inventories reflected a lack of confidence among businesses in the current global economic climate.
Mr Turner said it was likely that businesses reduced their stocks in the September quarter after their levels of unsold stock increased in the June quarter.
“Business confidence has been pretty low for most of the year, so you’d suggest that some of that rundown in inventories is just a lack of confidence,” he said.
“The declines in inventories were centred on the wholesale and retail sector, which fits the macroeconomic backdrop and concern over household spending.”
Mr Turner said the drop in inventories is likely to have implications for national accounts figures on Wednesday.
“It definitely adds some downside risk to most people’s GDP number’s I’d suggest.”
The accounts were expected to show that gross domestic product (GDP) grew by 1.0 per cent September quarter for an annual rate of 2.1 per cent, according to an AAP survey of 16 economists, conducted last Friday.
Macquarie Group senior economist Brian Redican said the weaker than expected inventories was nothing to be alarmed about.
He said Monday’s data still pointed to a strong September quarter economic growth rate of close to one per cent.
“I don’t think there will be too many surprises there, but it’s the impact of having a big rundown of inventories in the third quarter (that) might prompt some people to trim their growth forecasts,” Mr Redican said.
He said the market will get a better idea of what the GDP figures will look like after the release of September quarter trade data on Tuesday.
ICAP senior economist Adam Carr said the business indicator data fed into a generally solid picture for the Australian economy in the third quarter.
“It’s strong generally across the board, although there are some sectors of weakness,” he said.
“Sales growth looks very strong as well as retail, manufacturing, and obviously mining is doing really well.
“So it’s a positive report, and it adds to the weight of evidence that Q3 will be a very solid quarter.”
Mr Carr said that areas of weakness largely reflected global sentiment during the period.
“Production may be lower than expected but demand is certainly very healthy,” he said.
