A fall in company profits in the last three months of 2011 and a rise in inventories points to a moderate rate of economic growth in the December quarter.
The figures feed into the December quarter gross domestic product data to be announced by the Australian Bureau of Statistics (ABS) on Wednesday.
Estimated business inventories – unfinished goods and unfinished goods in stock – rose 1.4 per cent in the last three months of 2011, the ABS said on Monday.
RBC fixed income and currency strategist Michael Turner said the rise in inventories was a big number.
“This appears to have been an unintentional build-up given that it was focused in retail, a sector that has been shedding employees over the past few quarters,” Mr Turner said.
Mr Turner said the rise in business inventories would add 0.9 per cent to December quarter GDP, as production outweighed spending.
However, he said the 6.5 per cent fall in company operating profits and the small 0.8 per cent rise in wages in the December quarter was disappointing and would balance out the boost inventories gave to growth at the end of 2011.
“That was not a great quarter for income,” he said.
“We were forecasting 0.7 per cent for December quarter GDP and the net effect of these numbers means we’ll stick with that forecast.
“We don’t think profits are going to bounce back in the course of 2012.”
Mr Turner said the build-up was in retail inventory would also drag on economic growth in the first half of 2012.
He said the business indicators figures would not change the outlook for the Reserve Bank of Australia’s (RBA) next interest rate move.
“The RBA has expressed a view that growth has been around trend and there is nothing in these numbers to challenge that,” he said.
“I think the RBA will be more concerned with what is happening offshore, than what was happening in the December quarter.”
JP Morgan chief economist Stephen Walters said the increase in inventories would boost Australia’s GDP for the December quarter, but would weigh on the economy over the next few quarters.
“It makes GDP look stronger, but clearly if you’re building up inventories, that’s not a good mix for going forward.
“If you’ve got too much stock, you’ll probably cut production back in subsequent quarters.”
Mr Walters said the data was unlikely to influence the RBA when it decides on Tuesday whether to hold the cash rate at its current level of 4.25 per cent or make a quarter per cent cut.
All 13 economists surveyed by AAP expected the central bank not to move the cash rate.
“The RBA is looking more at where the economy is headed, rather than where it has just been.
“You’d need a very, very weak number, perhaps even a negative to get them to think about whether rate cuts were needed.”
