A fall in company profits for the past three quarters points to a broad-based slowing of the economy in the months ahead.
Ten of the 15 industries in the Australian Bureau of Statistics (ABS) business indicators surveyed showed falls in profits, including mining, manufacturing and retail.
Gross operating profits adjusted for inflation and seasonal factors fell 0.7 per cent in the June quarter, the ABS said.
They were down by 3.7 per cent in the March quarter and 6.3 per cent in the December quarter of calendar 2011.
Other data on Monday showed the slowdown in inventory building in the June quarter was less than economists expected, meaning less of a drag on economic growth than they feared.
The figures feed into the June quarter gross domestic product (GDP) data to be announced by the ABS on Wednesday.
JP Morgan economist Ben Jarman said the slightly better inventories contribution to economic growth was offset by the weaker profits.
“It only just marginally nudges down our second quarter estimate for GDP from 0.9 per cent to 0.8 per cent,” he said.
“If something like that is delivered, it would be a pretty solid performance.”
Mr Jarman said the business data points to a further slowing in the Australian economy in the second half of 2012.
“The composition of the business indicators shows further atrophy in profits, alongside (an) accumulation of inventories, a mix which does not bode well for output in the near term,” he said.
“Second, the persistence of the squeeze on profits, coming as it has with such household-friendly wage-income results, reaffirms our view that labour is becoming increasingly expensive in a slowing nominal growth environment, which will put pressure on the labour market.”
CommSec economist Savanth Sebastian said Australian companies faced difficult conditions.
“There’s no question that trading conditions are quite tough for businesses at the moment,” he said.
“That’s been alluded to in a lot of the surveys that have come out, and profitability continues to be squeezed.
“It’s a function of the multi-speed economy, although the mining sector is seeing a pick-up in costs.”
The ABS also released retail spending data on Monday, which showed a 0.8 per cent fall in July.
Mr Sebastian said it was inevitable that the Reserve Bank of Australia (RBA) would cut interest rates later in the year.
“The latest data showed that the economy is barely growing while inflation is solidly under controls,” he said.
Mr Sebastian said the RBA had a “rock solid case” to cut the cash rate from its present 3.5 per cent level.
“The only question now is when the next rate cut will take place.”
The RBA will hold its monthly board meeting on Tuesday and all 13 economists surveyed by AAP said the cash rate would remain at 3.5 per cent, but 11 economists also expect at cut some time in the last three months of 2012.
