Tomorrow’s National Accounts for the December quarter look like being a bit mixed, if the business indicators for December released yesterday by the Australian Bureau of Statistics are any guide.
They may be history, especially with the Reserve Bank determinedly looking forward out to 2010 in its great anti-inflation campaign, but the National Accounts will tell us a lot about how we have got to the current state of affairs.
They will make necessary reading and interpretation for anyone wanting to understand the background to the RBA’s interest rate decision and accompanying statement later today.
Business inventories were lower, company profits figures higher and wages seem to be easing from their peak mid way through last year.
Based on the figures, economists are saying that gross domestic product should be up by 0.7% to 0.8% in the quarter for a rise of 3.8% to perhaps 4.0% over the year.
The ABS said that estimated business inventories, in seasonally adjusted chain volume terms, rose 0.7% in the December quarter, compared to the surprise 1.3% increase in the September three months.
The December outcome was under market forecast for a 1.0% rise.
But company gross operating profits, in current prices, exceeded market forecasts of a 2% rise, rising a strong 3.9% in the December quarter, seasonally adjusted, compared to the surprise 1.4% fall in the September quarter.
Some economists reckon that adjusting for price movements, the rise in profits would have been closer to 2.5%.
Over the year to December, they were up 11.7%, which is strong when inflation is running around 3% to 3.5%.
The estimate for wages and salaries was just 0.9% in the December quarter, after rising 1.6% in the September quarter and 2.6% in the June quarter and 3.7% in the March quarter.
Wages and salaries were still up 9.1% in the year to December, but that’s down on the rate earlier in 2007.
The Reserve Bank will be looking at these and the way wages and profits are measured in the National Accounts as it searches for signs of a wages break out and a softening in corporate earnings.
So far neither has shown up in the Average Weekly Earnings or Labour Price Index series.
Wages, corporate profits and inventories are measured a little differently in the National Accounts, so they are not strictly comparable.
But with business investment up a very solid 5.1% in the December quarter, offsetting some softness in the construction sector and signs of better times in rural regions, the National Accounts might surprise on the upside. Certainly, if the retailing figures for 2007 and the December quarter are any sign, the economy was busting to spend.
Meanwhile, after all the gloom about the ‘hollowing’ out of manufacturing and the loss of the Mitsubishi car plant in Adelaide, and closures of a couple of other businesses with associated headline, signs that Australian manufacturing expanded last month after January’s contraction.
The Australian Industry Group/PricewaterhouseCoopers performance of manufacturing index rose 2.2 points to 51.4 from January when it slumped 8.4 points.
A reading above 50 is considered to be positive but a reading close to 50 indicates manufacturing is stagnating.
Uncertainty from financial markets, the strong Australian dollar and rising interest rates were all cited, but at a time when consumer confidence dropped, for business conditions in manufacturing to be viewed as positive, is an interesting reversal of January’s gloom.
A gauge of hiring by manufacturers slipped to 49.3 last month from 49.9 in January, while new orders rose to 54.9 points from 49.2 points, according to yesterday’s report.
Manufacturing accounts for around 10% of domestic economic activity and employs around the same number of people (which would be about 1 million).
The manufacturing survey, which is similar to the US ISM index, asked more than 200 companies about production, new orders, deliveries, inventories and employment.
The better tone to the survey comes days after the December quarter new private capital spending figures reported an upturn in manufacturing.
"The first estimate for Manufacturing in 2008-09 has risen by 14.6% from the weak first estimate of 2007-08 to be recorded at $10,705 million. Both asset types have risen in this time period (equipment by 9.8% and building by 27.9%)," The ABS reported last Thursday.
"In recent quarters the Manufacturing trend series has turned upwards after a sustained period of decline that began in late 2005. The projections for the series over the coming eighteen months suggest there will be growth in the series but at a moderate level."
"Moderate" is a good word to describe the results of the survey.
And to remind the Reserve Bank and anyone who is listening that inflation remains a problem, the latest TD Securities/Melbourne Institute Inflation measure shows the cost of living is now at its highest point in six years.
The Gauge rose by 0.3% in February, following an 0.3% rise in January.
In the twelve months to February, inflation was 4.0%, up slightly from the 3.9% rate in January.
The 4.0% rate was the highest recorded by measure and compares to the low of 2.6% recorded in May-June, 2007.
TD Securities senior strategist Joshua Williamson said inflation increased in February despite a fall in price of some volatile items such as petrol.
"This indicates that price pressures are more broadly based than just food and petrol. Furthermore, the monthly increase pushed yearly inflation to 4.0 per cent, which is well above the top of the RBA’s (Reserve Bank of Australia) inflation target band."
Underlying inflation also continued to increase, according to the inflation gauge, with the yearly trimmed mean measure of inflation posting a new record
