Bounce-back from COVID-19: CommSec's Craig James

EXPERT OBSERVER

The Business Indicators publication is largely important each quarter for the data on inventories that helps finalise the estimate for economic growth.

The gross domestic product (GDP) or economic growth figures are released on Wednesday. But there are still two important ‘partial’ components before then in the shape of government spending and net exports – the figures released on Tuesday.

At this stage GDP is expected to have rebounded by at least 2½ per cent. That means that the economy exited from its first ‘technical’ recession in 29 years during the September quarter.

Courtesy of government assistance, corporate profits rose another 3.2 per cent in the September quarter after the 15.8 per cent gain the June quarter. Profits are rising at the fastest annual rate in three years. The aim of policymakers has been to keep business in business and keep workers in jobs. And all evidence suggests that the measures are working well.

What do the figures show?

Business Indicators – September quarter

Company operating profits rose by 3.2 per cent in the September quarter to be up 18.6 per cent on the year. Profits rose in 12 of the 15 industry groups in the September quarter.

Inventories fell by 0.5 per cent in the September quarter after a 2.9 per cent fall in the June quarter. Inventories will add 0.9 percentage points to quarterly economic activity. Four of the six industry sectors posted declines in inventories led by Electricity, gas, water and waste services (down 3.7 per cent).

The total real value of sales rose by 4.4 per cent in the September quarter but was down 5.4 per cent on the year. Real sales rose in all of the 15 industry sectors except Mining (-1.5 per cent) in the September quarter. In current prices, sales rose by 4.0 per cent in the quarter but fell 6.8 per cent on the year.

Over the full year to September, real sales fell by 3.6 per cent on a year earlier (decade average +1.5 per cent). And in current prices, sales fell by 3.2 per cent in the full year to September (decade average +3.3 per cent).

In current prices, sales rose in seven of the states and territories in the September quarter: NSW (up 5.8 per cent), Victoria (up 2.2 per cent), Queensland (up 2.8 per cent), South Australia (up by 9.8 per cent), Western Australia (up by 1.5 per cent), Tasmania (up 13.2 per cent), Northern Territory (down 0.7 per cent) and ACT (up by 4.0 per cent).

Wages & salaries (includes changes in wages and employment) rose 2.4 per cent in the quarter to be up 0.4 per cent on the year – reflecting slower growth in wages but higher employment.

What are the implications for investors?

It’s all about COVID. It’s an extraordinary period but we are coming out the other side into a different world.

The good news is that the virus is suppressed across Australia. Yep more good news with stimulus measures to remain in place until we are fully back on our feet. And even more good news with the progress of vaccine development and potential for roll out in coming months.

Our major trading partner, China, continues to show encouraging signs of economic recovery with both manufacturing and service sector purchasing manager indexes well above the 50 line in November – the line that suggests expansion of activity.

CRAIG JAMES is the Chief Economist at CommSec