Forget the rebound in house prices in August out yesterday – that’s not an important bit of data at the moment even though it’s welcome.
No, the big economic news from yesterday was the sharp fall in business inventories in the June quarter which could very well help produce a negative reading for GDP tomorrow.
Data from the Australian Bureau of Statistics yesterday showed business inventories fell sharply in the June quarter, driven mostly by retail stocks. Business inventories were down 0.9% reversing 0.8%.
Economists say the fall could be par reaction to that first-quarter build-up but with retail volumes static in both the March and June quarters, it is clear the rise in stocks has more to do with a pile-up of unsold goods across the six months, not just one quarter.
Coupled with no growth in retail volumes in the June quarter, a sharp fall in building and housing investment and a fall in the value of constriction work done, there is every chance the slump in business stocks could push the GD reading to zero or a fall of 0.1% or 0.2%.
NAB economist Kaixin Owyong said yesterday the fall in inventories would subtract 0.6 percentage points from June quarter GDP, making the Reserve Bank of Australia’s forecast of 0.8 percent GDP growth unlikely.
The fall in inventories was driven by retail stocks, but all industries except utilities reduced stock holdings in the quarter, she wrote.
Company profits did pick up in the June quarter as strength in the mining sector outweighed weakness in manufacturing.
Seasonally adjusted gross operating profits at Australian companies rose by 4.5% in the three months to June 30, beating forecasts for a 2% rise.
That was driven by a 10.9% increase in mining profits.
That was apparent from the June 30 reporting season which ended last Friday for ASX listed companies.
Wages and salaries were up a seasonally adjusted 1.4% in the quarter.
Meanwhile, the Reserve Bank’s back-to-back interest rate cuts have again helped house prices to rise – especially in Sydney and Melbourne in August.
The monthly CoreLogic report on the national property market showed house values in Sydney rose 1.5% in August and 1.6% in the past three months.
Melbourne saw a 1.3% rise in August and 1.6% over the past three months.
Unit values in the two cities also rose – 1.8% in Sydney and 1.5% in Melbourne for the month and 2.5% and 2.4% respectively over the past three months
CoreLogic’s research director Tim Lawless said buyer demand and confidence was responsible for the lift in values as people took advantage of the RBA’s recent interest rate cuts and the Morrison government’s personal income tax reductions.
“While the recovery trend is still early, it does appear that growth trends are gathering some pace, particularly in the largest capital cities,” he said in yesterday’s release.
There was a 1.1% rise in Canberra house values over the month while Hobart prices were up 0.8%.
But elsewhere values were down. They dropped another 1.6% in Darwin, 0.6% in Perth, by 0.3% in Adelaide while they were flat in Brisbane.
But the rise was not what it seemed being concentrated in the more expensive end of the market (because that’s where the falls have been greatest). Expensive houses saw a 1.9% rise in August (and seeing they are concentrated in Sydney and Melbourne, helped push overall prices in that market.
Mr. Lawless pointed out that prices of more affordable homes fell 0.4% in the month. That’s where the bulk of properties are sold because there are more buyers and sellers.
