Profits soar as wages, investment flounder

By Marty Silk
(Australian Associated Press)

Company profits soared in the December quarter but the gain was at the expense of wage and investment growth, signalling a patchy economic outlook, economists say.

Gross profits soared 20.1 per cent or $13 billion in the quarter, led by a 49 per cent or $8.9 billion leap in mining profits, according to data released by the Australian Bureau of Statistics on Monday.

Capital Economics chief economist Paul Dales said the boost was due to temporarily higher commodity prices and export volumes and came after subdued growth in profits in the September quarter.

He said the profit growth signalled that Australia was unlikely to suffer a technical recession – two consecutive quarters of negative growth – but it was hardly time to celebrate.

“Yes companies have boosted profits, but that’s because they’re not investing and they know they don’t need to boost wages,” Mr Dales told AAP.

“You’re not getting a recession but over the year the Australian economy has made almost no progress, which is pretty disappointing.”

The ABS figures also showed wages and salaries fell 0.5 per cent in the quarter to be up only 1.0 per cent in year.

Company inventories rose by just 0.3 per cent in the December quarter, below market expectations of a 0.5 per cent rise.

Businesses build up their inventories when they anticipate rising sales, so rising inventories are seen as companies investing in themselves and form an important component of gross domestic product (GDP).

NAB economists said both measures would subtract from quarterly GDP growth, but company profits were likely to offset those falls.

Commonwealth Bank senior economist Kristina Clifton said companies will likely use their profits to increase dividends, which will be welcomed by consumers at a time when wage growth is weak, but investing was a much better way for businesses to increase future earnings.

“A meaningful lift in non-mining business investment is still the missing link in the economic transition from mining to non-mining led growth,” she said.

The ABS will release the official December quarter GDP figures as part of the national accounts on Wednesday.

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