Just as the October credit figures on Friday from the Reserve Bank lifted the chances of a big rate cut tomorrow, so this morning’s business indicators from the Australian Bureau of Statistics have, if anything, increased the chances even more.

A cut of 1% is now a very strong chance.

The Business Indicators for the September quarter came in around what the likes of Goldman Sachs JBWere suggested they might be; a bit misleading but strong hints of the sluggish domestic economy.

And that’s what the Reserve Bank has been worrying about. A separate survey on activity in the manufacturing sector was gloomier, hitting an all time low last month.

Goldman Sachs said “We expect the September quarter Business Indicators report to highlight the speed of the slowdown in the Australian economy.”

The ABS reported that business inventories, the most important figure from the group of indicators (especially for Wednesday’s national accounts for the September quarter) rose by a seasonally adjusted 0.7%.

That’s what Goldman Sachs JBWere forecast and it said in a preview this morning that “given the moderation in demand we are forecasting a large involuntary build-up of inventories. While this will support growth this quarter, it will weigh on activity looking further ahead.”

The market forecast was for a rise of just 0.2%, so most analysts under-estimated the extent of the slowdown in sales and a build up in stocks. That could be a positive for growth in the national accounts, but a temporary one.

That build up in stocks was strongly suggested by ABS figures which showed in volume terms sales of manufacturing goods and services fell 1.1% in the quarter and 0.1% for wholesalers goods and services.

Goldman said business profits would be up 5% (the market forecast a 4.0% rise) and the ABS reported that “The seasonally adjusted estimate for company gross operating profits rose 5.2% in the September quarter 2008.” It added that “the seasonally adjusted estimate for wages and salaries rose 1.4% in the September quarter 2008.”

Goldman commented: “While we have forecast a 5.0% jump in corporate profits, the majority of this is due to the lagged impact of the increase in bulk commodity contract prices earlier this year. Abstracting from this we expect profitability to soften.”

We have already seen that with a plethora of profit downgrades from some major banks, industrial companies like Goodman Fielder, retailers like Harvey Norman and property groups such as Lend Lease, Mirvac and GPT.

Tomorrow sees the current account figures and government spending data for the September quarter and retail trade trends for October. All this will feed into the Reserve Bank’s interest rate decision.

Figures also released this morning confirm the downturn in manufacturing that showed up in the ABS indicators.

The Performance of Manufacturing Index from the Australian Industry Group/Price WaterhouseCoopers was bad news. A sixth successive monthly decline in November, this time to the all time low of 32.7% from 40.4% in October. The November figure was the lowest since this measure started back in 1992.

Similar indexes are due for release around the world later today. And there will be indexes for the performance of the more important services sector out later in the week.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey