Company profits to drag on growth

Economic growth in the September quarter may be more lacklustre than economists expect after official data released today showed inventories were still in negative territory and corporate profits have declined.

Weaker than expected company profits, down 0.8 per cent, are likely to create a further drag on national income growth figures due out on Wednesday. Economists had expected a 1 per cent gain.

Inventories, which were down 0.4 per cent, were also worse than economists expectations of a 0.2 per cent decline.

While not as good as the market anticipated the change in inventories is a  significant improvement on the -0.9 per cent hit that has been a drag on the economy.

JP Morgan’s Sally Auld said inventories may prove to be an important swing factor given the 0.6 percentage point drag on the economy they had in the first half of this year.

“We look for inventories to unwind some of this headwind and provide a modest boost to third quarter GDP, but flag some small upside given the first-half drawdown.”

ANZ economists also pointed to the improvement inventories as a telling sign for GDP.

“We see GDP rising 0.6 per cent the September quarter, with inventories a major source of strength after their weakness in the second quarter.”

Source link Business News Australia

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