Businesses felt the brunt of the global recession in the final three months of 2008 as profits sank at their fastest pace since June 2003.
(As we have just found out from the latest interim reporting season.)
The Australian Bureau of Statistics said yesterday that company gross operating profits tumbled by a seasonally-adjusted 6.5% in the December quarter to $58 billion, a much bigger slide than the 2% forecast by the market.
Business inventories fell a surprising 1.9% in the quarter, also much larger than the market’s forecasts which were for a rise of 0.3%.
Sales by volume also fell in the quarter for manufacturers and wholesalers.
The data feeds into tomorrow’s national accounts for the December quarter and raise the prospects of a quarter of negative growth, instead of the small positive rise expected after some positive business spending figures last week.
The figures were contained in the latest Business Indicators from the ABS for the December quarter.
Depending on how they are treated by the number crunchers at the ABS, the falls could go someway to offsetting the positive gains from business investment and construction.
Government finances and the quarter’s balance of payments figures, out today, may play a major part in determining whether the GDP numbers are red or black, along with the contribution from the rural sector which is expected to be positive.
The 1.9% drop in stocks in the December quarter follows a 0.7% increase in the September quarter.
Falling stocks support the downturn in business conditions and confidence shown in the National Bank’s business surveys for January and February which hit successive lows.
The figures were released after the Australian Industry Group performance of manufacturing index posted its lowest result in more than 16 years, dropping 4.9 index points to hit 31.7 in February.
The seasonally adjusted new orders sub-index fell by 3.7 points to 28.1 in February, as overseas and domestic demand for manufactured products continued to retreat.
The figures show that manufacturing is contracting in Australia, just as it is in the US, Japan, Europe and all other major economies, but we will have no fears about deflation because inflation is still with us.
The AIG survey will be followed by similar survey results later today for major economies such as the UK, the US and China.
Manufacturing only accounts for 10% of the Australian economy, so while the sector’s strength has fallen to an all time low, it has so far done so without dragging the broader economy with it, as it has in Japan and Germany, two manufacturing and exporting giants.
It is one of the factors why we have so far avoided the crunch; but for how much longer is now the key policy question for the government, business and the Reserve Bank as it prepares for tomorrow’s board meeting.
Countries where manufacturing forms a greater part of activity such as Germany, Japan, Taiwan, South Korea and Singapore, have seen growth vanish and replaced by sharp and accelerating contractions.
The slump in exports (a major factor behind the steep fall in US 4th quarter growth to an annual contraction of 6.2%) is worldwide and reflects the slumping level of activity.
In the meantime we can expect more tough news from the manufacturing sector (last week’s 1850 job cuts and plant closures from Pacific Brands was merely a reaction to a gathering set of pressures on that company: the financial crunch and slowdown were the last straws).
The slump in resources was underlined yesterday by Anglo Coal from South Africa revealing job cuts totalling 650 people from its Australian mines, principally in Queensland.
Meanwhile inflation continues to give us a nudge to remind us that it hasn’t been fully vanquished by the slowdown.
The TD Securities/Melbourne Institute inflation gauge for February rose 0.7%, thanks to the boost in petrol prices from the higher world oil prices (compared with January) and higher prices for fast food and technology products.
But the rise was less than January’s 0.8%. On an annual basis, prices rose 3.1% in the year to February, from 2.7% in the 12 months to January.
Taken with last week’s high wages numbers, there is every chance we would have been getting another rate rise tomorrow from the RBA, but for the slump and global recession.
It was a year ago this week that the RBA lifted the cash rate to 7.25% from 7% amid some controversy.
The cash rate is now 3.25% and could fall to 3% or lower if the RBA cuts.
Meanwhile the doubters who still think the December stimulus package hasn’t worked (despite higher retail sales and better personal spending figures in January), will of course deny or ignore the January new home figures from the Housing Industry Association.
The 3% in rate cuts up to the end of January also helped as housing affordability improved.
The HIA said sales of new homes, including multi-unit dwellings, rose nationally by 8% in January, reversing December’s 1.1% fall.
"A better start to 2009 for new home sales is an encouraging result," said HIA chief economist Harley Dale said in a statement.
"But a sustained recovery in new home construction will rely on trade-up buyers and investors returning to the market, and the timely procurement of the planned 20,000 new public and community housing dwellings."
Detached home sales jumped nearly 10% in the month, reflecting the Reserve Bank’s interest rate retreat beginning in September of last year.
