Australian BIS: Profits rebound as commodity prices bounce off lows - Westpac

Andrew Hanlan, Senior Economist at Westpac, suggests that the Australia’s Business Indicators survey for June was generally positive and the profits surprised to the high side, as did business inventories.

Key Quotes 

• “Profits rebounded by 6.9% in the quarter, exceeding expectations (market median +2.0% and Westpac +4.0%). The rebound has profits unchanged from the level of a  year ago.

• However, profits on an "adjusted" basis are only a little above our expectations, at 1.9% vs a f/c 1.2%. (The adjustment aims to align the estimate with the national accounts measure of profits ex finance, which abstracts from inventory valuation affects.)

• Mining profits snapped back, up 14%, as commodity prices bounced off historic lows. Mining profits have come under pressure over recent times as commodity prices retreated from historic highs.

• Non-mining profits (ex finance) rose 3.5% in June to be 1.7% lower than a year ago. Over the three previous quarters, profits for this segment fell by 5%, a decline that appears to be overdone relative to current conditions.

• Wage incomes (that is the wages bill) increased by a modest 0.8%, following a 0.5% rise in March. Annual growth in wage incomes is 2.8%, accelerating from 1.8% in mid-2015.

• Turning to private non-farm business inventories, a 0.3% rise was recorded in the June quarter, meeting expectations (mkt median 0.3% and Westpac 0.4%). That will see inventories add 0.2ppts to Q2 GDP growth, whereas we anticipated a neutral impact. The surprise reflects a downward revision to inventories for Q1.

• Our forecast for Q2 real GDP growth is 0.4%qtr, 3.2%yr. We interpret the positive surprise on inventories as lessening the downside risks to our central case forecast and on the income side our assessment of the detail suggests that the positive surprise is only at the margin.”