Corporate Australia raises wages in Q2, but inventories a drag

SYDNEY: Australian companies doled out the biggest increase in wages and salaries in two years last quarter in a promising boost to consumer spending power, though a rundown in inventories likely dragged on overall economic growth.

Yesterday’s data from the Australian Bureau of Statistics showed gross company profits dipped 4.5% in the second quarter, from a gain of 6% in the first when earnings scaled record levels. Mining suffered a fall of more than 15% at pre-tax level.

But wages and salaries rose 1.2%, or A$1.6bil, in the three months to June in a sign that businesses are finally willing to share their fortunes with workers.

Household consumption accounts for about 57% of Australia’s gross domestic product, so workers having more money to spend is a positive development.

There are also more people in work. Separate data out yesterday showed job advertisements climbed 2% in August, a sixth straight month of gains suggesting the strong pick up in employment seen so far this year could run for a while yet.

In all, corporate Australia seems to be in good shape.

An analysis by stockbroker CommSec shows 91% of 139 companies that reported full-year results in August posted a profit. While revenues are up only 6.5% on a year ago, profits have shot up over 62.9% and cash holdings have jumped 27%.

The reporting season has also revealed a more confident Australia Inc. For just the third results period since 2012 capital expenditure was guided higher. The upgrades are big and broad based, according to Credit Suisse.

A measure of Australian business conditions and confidence were at its highest since early 2008, a survey showed last month, as company profits and employment stayed strong.

The revival was badly needed as capital expenditure was a heavy drag on the economy last year.

Figures on gross domestic product (GDP) due tomorrow are forecast to show growth of 0.8% in Australia’s A$1.7 trillion economy, bouncing from a sluggish 0.3% in the March quarter.

Such an outcome would extend the country’s remarkable run of 26 years without a technical recession – defined as two consecutive quarterly constractions for GDP.

Yet annual growth is still seen at a tepid 1.9%.

One drag on growth last quarter was business inventories, which fell 0.4% when analysts had looked for a small rise. The pullback looked to have taken around 0.7 percentage points from GDP growth in the quarter, though it also meant a bounce was likely this quarter as firms re-stocked.

The Reserve Bank of Australia (RBA) has been predicting an acceleration in growth toward 3% over the next couple of years, as a long slump in mining investment eases and high prices for key commodity exports percolate through the economy.

The central bank holds its September policy meeting today and is considered certain to keep interest rates at 1.5%, where they have been since August last year.