The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Monday, September 5, 2011

Data flags upside risk to Australia's Q2 GDP with profits, wages and inventories surging

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."