Tomorrow’s third quarter economic growth looks like being a little weaker than forecast with Australian Bureau of Statistics data on business inventories (stocks) much lower than forecast and wages having dropped in the same period.
But the emergence of the new Covid variant has made the September data almost irrelevant as economists focus on the current quarter and then the March quarter in the event that Omicron is as dangerous as some say.
Covid Omicron saw the ASX 200 lose 39 points in a bouncy day’s trading yesterday to take the two-day slide on the local market to 168 points. Early Wall Street futures trading was showing opening gains for the major indexes last night. US WTI oil futures were up more than 4% to %US71 a barrel and Comex gold was up half a per cent.
The new variant has concentrated minds around the outlook and the upbeat view of a vaccinated world (in major economies at least) has been replaced with a dose of realism and concern about the nature of the new variant.
The new realism has, for the time being, replaced the very optimistic ‘rebound is underway’ thinking.
There are now three cases of the new variant in Sydney and possibly one more in the Northern Territory.
It would be fair to say the ending of lockdowns and other restrictions in NSW, Victoria and the ACT saw economists largely discount the third quarter.
And while the new variant has added to the size of the discount being applied to the September quarter data, some of the information carries over into the current quarter which will still be solid, despite fears of Omicron.
The ABS business indicator series on Monday showed that corporate profits were supported by transfer payments from government in the quarter, while wages and salaries fell over the three months with minimal support from government.
Business inventories fell 1.9% over the quarter – a fall that could drop growth more sharply, on top of the record 4.4% slide in retail sales volumes in the quarter.
Company gross operating profits increased 4% over the September quarter, boosted by government stimulus, according to the ABS but wages and salaries fell 0.8%.
In the arts and recreation sector, wages and salaries fell 22.9% while gross operating profits dropped 1.3%. Wages and salaries for accommodation and food services fell 23.5%, while company gross operating profits dropped 12.5%.
Healthcare and social assistance wages and salaries increased 1.6%, but education and training fell 2.2%.
Economists had been expecting a decline in retail inventories due to the impact of lockdowns.
Economists had been expecting a 3% to 4% fall in GDP for the quarter but the weak inventories could push that estimate closer to 4%.
Today’s balance of payments and Government finance statistics are the final pieces of data for the national accounts to be released on Wednesday.
The balance of trade in the quarter was a record $40.6 billion, up from just over $31 billion in the three months to June. Exports surged sharply in the quarter, rising by 10% or more but imports only edge up just over 2%.
The echoes of the iron ore price boom helped send exports and the trade balance to record levels in the three months.