Corp profits and inventories fall again

The global economic downturn continued to affect corporate Australia in the June
quarter as profits dived and the mining sector posted its worst decline on record
because of the commodities slump.
However, while the rundown in inventories during the quarter may lead to slower
growth in gross domestic product (GDP) than was originally expected, it will also
aid economic recovery as firms rebuild their stock levels, economists say.
Firms in the mining, construction and wholesale trade sector dragged overall profits
below market expectations to a decline of 7.8 per cent in the June quarter, the
Australian Bureau of Statistics (ABS) said on Monday.
The market had forecast a decline of 4.5 per cent.
Inventories fell by 3.4 per cent in the June quarter, the biggest quarterly fall
since the data series began in 1986, and was the third consecutive quarterly fall.
Citigroup senior economist Joshua Williamson said local firms continued to be
dragged down by the slowdown in the global economy.
"Both the inventories and profits data represent a snapshot of the economy that was
influenced by the worst of the global economic downturn," Mr Williamson said.
The ABS data showed profits fell 14.7 per cent year-on-year, and that the June
quarter represented the third consecutive quarterly decline for corporate profits.
This followed falls of 6.1 per cent in the March quarter and 7.2 per cent in the
December quarter.
Profits in mining fell 24.7 per cent in the quarter, wholesale trade was 12.6 per
cent lower and construction was down 6.1 per cent.
ANZ Banking Group economist Riki Polygenis said the slide in the profitability of
miners weighed on corporate Australia during the June quarter.
"Leading the second quarter's fall, the highly cyclical mining sector suffered its
biggest quarterly drop in gross operating profit in the history of the data series,
down 24.7 per cent," Ms Polygenis said.
"This was not surprising given the 30 to 60 per cent fall in contract prices for
coal and iron ore which mostly took place in the second quarter."
Ms Polygenis said the rundown in stocks and the rebound in non-mining companies
boded well for the economy in the second half of 2009.
"The third consecutive quarterly decline in inventories and the improvement in
non-mining profits suggests upside risks to our forecasts for relatively subdued
economic growth in third quarter and fourth quarter GDP," Ms Polygenis said.
"Inventories will need to be rebuilt and production will continue to pick up in
order to replenish these stocks."
St George chief economist Besa Deda said the fall in inventories would lower the GDP
due on Wednesday.
"The change in inventories means that inventories are set to detract 0.8 percentage
points from GDP growth in the June quarter," Ms Deda said.
Inventories in wholesale trade had the largest fall of 5.7 per cent, and stocks in
manufacturing declined by 2.9 per cent.
Wages and salaries fell by 1.1 per cent in the second quarter, following a 0.5 per
cent drop in the previous three months, the ABS data showed.
Economists now await the release of quarterly government spending and balance
payments data on Tuesday.
The market median forecast for GDP was for growth of 0.7 per cent in the June quarter.