Tomorrow’s national accounts figures will give us some understanding of how the economy fared in the June quarter (and, depending on revisions, perhaps change our perspective on the unexpectedly strong March quarter). At this point, the numbers look weaker than economists had been expecting — but it won’t be enough for the Reserve Bank to do anything but sit tight.

This morning’s balance-of-payments data for the June quarter from the Australian Bureau of Statistics showed a big (41%) lift in the seasonally adjusted current account deficit to $19 billion, which will cut tomorrow’s GDP number significantly — 0.6 points, according to the ABS. The current account deficit was the largest in six years and can be explained by the continuing fall in our terms of trade (and weaker export volumes this quarter). The ABS said the terms of trade fell 3.4% in the quarter, from a 2.9% in the three months to March.

Yesterday the ABS released its Business Indicators data for the June quarter, showing no movement in inventories in the June quarter and a big fall in company profits. However, there was a surprisingly (and somewhat suspiciously) strong 1.1% rise in wages and salaries in the June quarter, which will add to GDP. Economists expressed surprise at the strength of the increase, the strongest for 18 months. That will go some way to offsetting the 1.9% fall in company profits in the quarter, which was the fifth consecutive quarterly fall in profits. Both feed into the income measure of GDP.

Inventories remained flat (seasonally adjusted), meaning companies either sold off excessive stocks, or cut orders to match consumer demand. Westpac economists reckon that could detract 0.2% from GDP.  The data also included sales figures for the quarter: sales in manufacturing were down 0.5%, seasonally adjusted, for the quarter and down 5.8% for the year to June, while wholesale sales dropped 0.4% from the March quarter, but rose 1.6% over the year. The sales figures will feed into the production measure of GDP

The drop in gross operating profits by 1.9% from the March quarter and 3.9% over the year to July was a surprise. Not for the 9.9% decline in mining industry profits — that was entirely expected — but in the financial-and-insurance-services sector, where profits fell by 38.9%.

Some economists reckon there’s a (small) chance growth could slow to next to nothing, or dip into the red, after the 0.9% rise in the March quarter. Remember, there was a 0.5% positive contribution to the March-quarter GDP numbers in the March-quarter current account data (though the ABS cautioned that the accuracy of the 0.6% detraction depended on whether there were revisions to the March-quarter’s trade data). All will depend on the way the government finance statistics are incorporated into tomorrow’s national accounts — there was a lift in total government deficit spending from around $1.5 billion in the March quarter to $2.9 billion in the June quarter. All in all, it is likely quarter-on-quarter growth has slowed to a range of 0.3% to 0.6%, which, subject to any revisions, could have GDP growth through the year to June easing to a range of 2.0% to 2.4%.

But bear in mind, no matter what the number for the June quarter, we’re looking back into the past. And the RBA, at today’s meeting, will be focused firmly on coming months — where there’s no reason at this point to shift either way. More data today from the ABS showed building approvals for July rose 4.2%, thanks to a more than 6% rise in approvals for non-private dwellings (apartments, etc). That offset a 3% fall in approvals for non-private dwellings, meaning the residential construction boom remains intact. In the year to July, total approvals were up a solid 13.4%, well ahead of forecasts for a 10% rise. They were up 13.5% in the year to June, an upward revision from the originally reported 8.6%, so more good news from the most important area of the economy at the moment.

Peter Fray

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