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Second glance exposes plodding economy

AAP logoAAP 5/09/2016 Garry Shilson-Josling, Economist

The latest batch of economic indicators follows a familiar pattern for key Australian data: they look pretty good on first impression but are not quite as impressive at second glance.

The headline measure of company profits posted its biggest quarterly rise for exactly five years

But more than half the 6.9 per cent surge was on paper, the result of commodity price rises and upward revaluations of inventories.

What's more, the profits of unincorporated businesses fell, while total wage bill of the industries covered by the estimates put in only a modest rise.

Tot up all these measures of income and, after adjusting for the inventory valuation effect and shaving off about a half per cent to adjust for likely price changes, you get growth of about a half per cent in the quarter.

So economists, who had mostly been expecting a quarterly GDP rise of a half per cent or a bit less, pending government spending and foreign trade data from the bureau on Tuesday, are unlikely to alter their forecasts much, if at all.

Another June quarter indicator on Monday was the estimate of business inventories, which rose in the quarter after falling the quarter before.

That turnaround will account for about a quarter per cent of the June quarter GDP rise.

But not too much should be made of that.

For one thing, the June quarter rise was thanks largely to a jump in the volume of stock held by wholesalers, most likely the result of the timing of grain harvesting and exporting rather than anything relating to the wider economy.

In any case, the fall in inventories in the March quarter had originally been reported as a rise, so in effect the implied boost to growth in the June quarter will be entirely at the expense of less growth in the three months before.

The big picture of plodding economic growth as the economy headed into the middle of the year looks much the same as it did before all the data on Monday.

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