Business inventories data drags on GDP estimates

Business inventories have booked their biggest fall in three years, dragging on economist’s estimates for GDP growth.

 

Business inventories have logged their biggest fall since 2014 in the June quarter, putting a dampener on expectations for Wednesday’s GDP numbers.

The unexpected fall saw inventory levels dropped 0.4 per cent from March to June, according to the Australian Bureau of Statistics, swinging from a 1.1 per cent lift the previous quarter and against expectations of a 0.3 per cent gain.

“Inventories will make an even larger-than-expected subtraction from growth in the second quarter, suggesting the risks to our GDP forecast of 0.7 per cent are tilted to the downside,” Westpac senior economist Andrew Hanlan said.

The fall is expected to take 0.7 percentage points from GDP in the quarter, reversing the sizeable 0.5 percentage point contribution in the March quarter.

Gross company profits also missed expectations, falling 4.5 per cent seasonally adjusted, against an anticipated 4 per cent decline. Mining sector profits slumped 11.5 per cent in the quarter.

But wages surprised on the upside, rising 1.2 per cent in the June quarter, seasonally adjusted, and are up 1.6 per cent on last year. The lift reflects more hours worked as the economy gains momentum, Mr Hanlan said, meaning that the average wage per hour was flat in the period.

With inventories set to drag on GDP, National Australia Bank is expecting Wednesday’s numbers to show growth of 0.6 per cent, up from March’s 0.3 per cent. The bank expects growth rate to drop to 1.6 per cent year-on-year, the weakest rate since 2009.

“We actually think the economy is better than that sort of number. Private investment looks like it’s increased for the second quarter in a row and some of the capex data, although it’s been widely misinterpreted, is actually not bad in the sense that non-mining capex expectations are actually strengthening,” NAB chief economist Alan Oster told The Australian.

The last of the GDP inputs is balance of payments, out tomorrow, alongside government spending.