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Company inventories to add to GDP growth

AAP logoAAP 5/09/2016

Company inventories could provide a bigger boost to economic growth in the second quarter than previously forecast, economists say.

The Australian Bureau of Statistics business indicators show inventories, which include work in progress and finished goods owned by businesses, edged 0.3 per cent higher in the June quarter.

Inventories were also revised to fall 0.4 per cent in the previous quarter.

JP Morgan economist Tom Kennedy said the revision implied inventory growth could provide a small boost to June quarter GDP rather than having no impact, as previously forecast.

"Our expectation had been for the economy to suffer some payback following exceptionally strong GDP growth in the first quarter but today's inventories revisions might smooth out the trajectory," he said in a note.

Meanwhile, June quarter company profits jumped 6.9 per cent, boosted by a bounce in commodity prices, and wages and sales also rose in the quarter.

National Australia Bank economist Tapas Strickland said breaking down company profit figures into sectors revealed a fairly healthy corporate landscape, with non-mining profits up 4.6 per cent and mining profits up 14.2 per cent in the quarter.

"Quite possibly due to a bounce in commodity prices, which will see second quarter GDP record the first improvement in the terms of trade in nearly three years," Mr Strickland added.

ANZ head of Australian economics Felicity Emmett pointed out wage growth of 0.8 per cent in the June quarter suggested that the GDP measure of the wages bill could show a small step up in growth as well.

"Importantly, the weakness in wages in the mining states looks to be fading and, for the first time since 2011, all states and territories saw a growth in the wages bill in the quarter," she said.

However, Mr Kennedy noted that despite the positive quarterly jump in profits, annual profit growth was flat.

"Annual profits growth is still unimpressive and remains consistent with our view firms operating margins will continue to be squeezed going forward," he said.

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