The Bull

Wednesday 17

October, 2018 5:02 PM



Record profits

Record profits

Company operating profits rose by 5.9 per cent in the March quarter to stand 5.8 per cent up on the year. In the year to March, profits hit a record high of $326.7 billion, up 12.3 per cent over the year.

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04.06.2018 03:43 PM

Record profits and sales; Petrol price peak?
Business Indicators; Weekly petrol prices

Record profits: Company operating profits rose by 5.9 per cent in the March quarter to stand 5.8 per cent up on the year. In the year to March, profits hit a record high of $326.7 billion, up 12.3 per cent over the year.

Petrol: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 0.1 cent last week to 153.3 cents per litre. Sydney, Melbourne and Brisbane prices fell from highs with prices lifting in other capital cities. 

What does it all mean?

Australia has a virtuous economy. Businesses say that operating conditions are the best in 20 years. Aussies are spending, global demand is rising, and as a result sales are also lifting. With profits at record highs, businesses are investing and hiring more staff. And those people that are finding jobs are adding to spending and therefore keeping the virtuous cycle going.

Over the past year profits and sales hit record highs. And both sales and the wage bill are growing at the fastest pace in more than six years. In short, the economy continues to do well.

Clearly the Reserve Bank has done well by leaving rates low to stimulate the economy. And still there are few signs that inflationary pressures are emerging. The next rate move is up, but not for a number of months yet.

In Australian dollar terms the Singapore gasoline price has eased 3.5 cents a litre. The terminal gate price in Australia has fallen 3 cents from the highs. The pump price should fall around 3 cents a litre to around $1.50 a litre in the next fortnight. For further falls in petrol prices to occur, Saudi Arabia and Russia will need to be more definite about an easing of the production restraint agreement.

What do the figures show?
Business Indicators

Company operating profits rose by 5.9 per cent in the March quarter after rising 2.8 per cent in the December quarter. Profits were up 5.8 per cent on the year.

Profits rose in 12 of the 15 industry groups in the March quarter. Profits rose most in Arts and Recreation services (up 18.8 per cent) and Administrative and support services (up 13.6 per cent). The biggest falls in profits were Financial and insurance services (down 14.4 per cent) and Accommodation and food services (down 5.3 per cent).

In the year to March, profits hit a record $326.7 billion, up 12.3 per cent on a year earlier.

In rolling annual terms, mining operating profits rose by 19.1 per cent for the year to March to a record high of $110.6 billion. Non-mining profits rose by 9.1 per cent to a record $216.15 billion.

Unincorporated gross operating profits rose by 2.0 per cent in the March quarter after rising 1.3 per cent in the December quarter. Business gross operating profits rose by 5.2 per cent after falling by 0.2 per cent in the December quarter. Company profits before tax fell by 16.0 per cent in the March quarter after rising 18.9 per cent in the December quarter.

Inventories rose by 0.7 per cent in the March quarter after rising 0.2 per cent in the December quarter. Three sectors rose and three fell. Inventories rose the most in Electricity, gas, water and waste services (up 4.1 per cent) and Wholesale trade (up 3.5 per cent) but fell most in Retail trade (down 1.8 per cent).

Sales rose in 10 of the 15 industry sectors in the March quarter. Sales rose the most in Administrative and support services (up by 3.0 per cent) and Financial and insurance services (up by 2.5 per cent). Sales fell most in both Electricity, gas, water and waste services and (down 4.1 per cent) and Accommodation and food services (down 1.4 per cent).

The total value of sales rose by 0.6 per cent in the March quarter to be up 3.1 per cent over the year (decade average 1.6 per cent) equalling the strongest growth in 6½ years. Non-mining sales rose by 0.7 per cent in the quarter with annual growth easing from a 6-year high of 3.4 per cent to 3.1 per cent.

Over the year to March, sales were up 2.8 per cent on a year earlier – the strongest growth in nine years.

In current prices, sales rose in all states and territories in the March quarter except the ACT: NSW (up 1.9 per cent), Victoria (up 1.2 per cent), Queensland (up 3.5 per cent), South Australia (up 3.6 per cent), Western Australia (up 1.8 per cent), Tasmania (up 1.8 per cent); Northern Territory (up 2.2 per cent) and ACT (down 3.7 per cent).

Wages & salaries (includes changes in wages and employment) rose by 0.8 per cent in the March quarter to be up 5.1 per cent over the year – the strongest growth in almost six years.

Petrol prices

According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 0.1 cents to 153.3 cents a litre in the past week.

The metropolitan petrol price fell by 0.7 cents to 153.2 cents per litre, but the regional price rose by 1.2 cents to 153.7 cents per litre. The gross retail margin fell from 13.16 cents to 12.66 cents.

Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 3.0 cents to 151.7 c/l), Melbourne (down by 4.4 cents to 152.8 c/l), Brisbane (down by 2.8 cents to 155.8 c/l), Adelaide (up by 17.3 cents to 156.6 c/l), Perth (up by 1.4 cents to 150.5 c/l), Darwin (up by 2.3 cents to 153.3 c/l), Canberra (up by 3.0 cents at 152.3c/l) and Hobart (up by 1.8 cents to 156.5c/l).

Today, the national average wholesale (terminal gate) unleaded petrol price stands at a 137.1 cents a litre, down by 3.0 cents over the week. The terminal gate diesel price stands at 139.1 cents a litre, down by 2.3 cents over the past week.

Last week the key Singapore gasoline price fell by US$2.10 or 2.3 per cent to US$87.80 a barrel. In Australian dollar terms the Singapore gasoline price fell by $2.41 or 2 per cent to $116.43 a barrel or 73.23 cents a litre.

MotorMouth records the following average retail prices for capital cities today: Sydney 148.0c; Melbourne 150.0c; Brisbane 153.1c; Adelaide 152.1c; Perth 140.5c; Canberra 155.0c; Darwin 155.0c; Hobart 157.4c.

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.

Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory's metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

What are the implications for interest rates and investors?

Corporate Australia is in great shape. Sales and profits are at record highs, prompting more firms to invest and hire more workers.

The wage bill for businesses is growing – because both employment and wages are growing. The lift in the wage bill is yet another sign of a healthy economy.

Interest rate settings remain on hold. But as long as inflation remains contained, interest rates should remain on hold until early next year.

Published by Craig James, Chief Economist, CommSec
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