UBS summarise today's ABS data, which were well above expectations, with worrying news on the wages/productivity/inflation front and no sign of an economy heading into recession:
"Inventories rose 2.5% in Q2, well above expectations (UBSe +0.8%, mkt +0.3%), implying a significant contribution to Q2 GDP of about 0.8%pts, well above most analysts expectations (UBSe +0.2%pts, mkt nf). Inventories rose most significantly in both the mining sector (+12.1%, $1.1bn) and in the wholesale sector (+3.6%, $2.0bn), with smaller gains in manufacturing and retail. While we estimate export have risen by about 4% in Q2, the rise in mining inventories suggests mining output - likely coal - has recovered more rapidly than exports have been delivered.
Industry sales rose strongly in Q2, up 1.0% (after -0.2%), the best real q/q rise in almost 2 years. This suggests a relatively solid "GDP - production" side of the GDP accounts due Wednesday. The rise was relatively broad-based, driven by mining sales (+6.0%), transport (+4.1%) and "other" (+2.0%, the largest sector), with flat performances in retail, manufacturing, and weakness in construction and wholesale.
Wages rose a sharp 2.3% in Q2, strongest since Q3 last year, pushing the y/y pace of the economy's "wage bill" (so reflecting, wage rates and hours and jobs) to 8.3% y/y, its fastest since the 9.0% mid 2008. This would suggest strong income flows to the household sector, and a good contribution to the "GDP-income" side of the GDP accounts. The gains were broad-based (including retail), with the strongest gains in mining & utilities. Ex mining, the wage bill rose 2.2% to 8.5%. Not surprisingly, the strongest gains were in WA (+3.3%, 18.6% y/y), but there were also solid gains in NSW (+1.5%, 6.5% y/y) & Vic (+1.4%, 9.2% y/y).
Company profits rebounded 6.7% q/q in Q2, well above consensus (2.9%), but closer to UBS (8.0%), albeit after three falls from a mining driven jump in Q210 (Q111 was -2.2%, revised slightly from -2.0%). This slowed the y/y pace to just 0.2% - weakest since Q110 - from 8.5%. That said, inventory valuation adjustment suggests Q2 profits rose ~9% in the GDP ‘income’ account, and hence will add strongly to GDP growth. By industry, the q/q rise was broad-based, albeit mining led with a sharp rebound (15.2% q/q, but only 0.9% y/y), with gains for construction, retail, transport & warehousing, rental & hiring, and other; but manufacturing and wholesale fell."
