Company profits jump in June


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By CommSec

Business Indicators; Job Advertisements

  • Sales up: Economy-wide sales rose by 0.6 per cent in the June quarter. Sales are up 3.5 per cent over the year – the biggest annual gain in 7½ years.
  • Profits up: Company operating profits rose by 6.9 per cent in the June quarter to be broadly unchanged over the year.
  • Job advertisements up: Job advertisements rose by 1.8 per cent in August to 4-year highs. Job ads are up 8.0 per cent on a year ago.

What does it all mean?

The Business Indicators publication contains the latest information on sales, profits, wages and inventories. But the quarterly data can be a little “noisy”. A little digging is required to reveal the trends.

If you aggregate sales across industries, the data shows that economy-wide sales rose by 0.6 per cent in real, seasonally adjusted terms in the June quarter. And that means sales were up by 3.5 per cent over the past year – the strongest gain since December quarter 2008. While businesses are struggling with low prices for their goods, sales are growing solidly in volume terms.

Again, profits data shows that companies are still making money – as CommSec highlighted in the recent “earnings season” for listed companies. Competition may be strong, but companies are finding a way to lift sales and profits.

The icing on the cake was data showing job advertisements at 4-year highs. Interest rates certainly haven’t been cut because the economy has been struggling, rather to accelerate the pace of activity even further.

What do the figures show?

Business Indicators:

  • Company operating profits rose by 6.9 per cent in the June quarter after falling by 4.4 per cent in the March quarter and falling by 3.5 per cent in the December quarter. Profits were largely flat over the year.
  • Profits fell in just 2 of the 15 industry groups. Profits fell most in Construction (down by 27.7 per cent) and Accommodation and food services (down 17.8 per cent). Profits rose most in Financial and insurance services (up 96.7 per cent) and Administrative and support services (up 28.5 per cent).
  • In rolling annual terms, mining operating profits fell by 11.7 per cent for the year to June to $62.95 billion. Non-mining profits rose by 1.1 per cent to $187.43 billion for the year to June, although down from the record high of $188.9 billion in the year to December 2015.
  • Unincorporated gross operating profits fell by 5.5 per cent in the June quarter after falling by 4.5 per cent in the March quarter. Business gross operating profits rose by 5.0 per cent in the June quarter after falling by 4.5 per cent in the March quarter. Company profits before tax rose by 18.7 per cent in the June quarter after falling by 16.9 per cent in the March quarter.
  • Inventories rose by 0.3 per cent in the June quarter after falling 0.4 per cent in the March quarter and falling 0.2 per cent in the December quarter. Inventories rose in Wholesale trade (up 3.0 per cent) but fell most in Electricity, gas, water and waste services (down 2.8 per cent).
  • Sales fell in 5 of the 15 industry sectors in the June quarter. Sales fell the most in Mining (down 1.6 per cent) followed by Electricity, gas, water and waste services (down 0.5 per cent). Sales rose most in Financial and insurance services (up 3.8 per cent) and “Other services” (up 3.7 per cent).
  • The total value of sales in the June quarter rose by 0.6 per cent after lifting by 1.6 per cent in the March quarter (biggest rise in six years). Annual growth rose from 2.3 per cent to a 7½-year high of 3.5 per cent.
  • In current prices, sales rose in all states and territories in the June quarter: Northern Territory (up 5.0 per cent), Tasmania (up 4.6 per cent), ACT (up 3.8 per cent), NSW (up 2.2 per cent), Western Australia (up 1.8 per cent), South Australia (up 0.9 per cent), Victoria (up 0.8 per cent) and Queensland (up 0.3 per cent).
  • Wages & salaries rose by 0.8 per cent in the June quarter to be up 2.8 per cent over the year.

Job Advertisements:

  • Job advertisements rose by 1.8 per cent in August to a 4-year high of 160,184 ads. Job ads have only fallen once in the past four months. Job ads are up 8.0 per cent on a year ago. In trend terms, ads rose by 0.5 per cent in the month to be up 6.1 per cent over the year.

What is the importance of the economic data?

The quarterly Business Indicators publication by the Bureau of Statistics contains measures such as inventories, company profits and income from sales. Higher inventory (stock) levels can be either intentional or unintentional. If stocks are low and sales are expected to rise in the future, businesses will seek to build up stocks. However an unintentional build-up in stocks is where sales fall short of expectations, leaving more goods on the shelves than desired. If profits are increasing then this may point to increased capital spending and employment in the future. Rising profits are also a sign of favourable business conditions.

The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.

What are the implications for interest rates and investors?

Companies are lifting sales and profits in supposedly “challenging” times. More companies are finding a way to make money.

Both the lift in economy-wide sales and rise in purchases of motor vehicles by businesses are encouraging, showing that companies are indeed starting to part with cash.

The latest data shows there is no urgency for the Reserve Bank to cut rates. Perversely the strong economy has potential to push up the Aussie dollar even further, making life difficult for exporters, regional Australia and those competing against imports.


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