Australia Q2 Inventories Fall Unexpectedly, Detract from GDP

--Wholesale Stock Decline Main Reason for Drop In Overall Inventories

--Company Profits Down Due Mainly to Mining Sector

     SYDNEY (MNI)- From Business Indicators data for the second quarter

published by the Australian Bureau of Statistics on Monday:

                                                  Q2                          Q1

--------------------------------------------------------------------------------

                                        %Change, Q/Q                %Change, Q/Q

Inventories                                     -0.4    +1.1 (revised from +1.2)

MNI Median                 +0.3 (Range -0.7 to +1.2)

Company Operating Profits                       -4.5           +6.0(no revision)

MNI Median                  -4.0(Range -9.0 to +6.0)

Wages and Salaries                             +1.2%  +0.2% (revised from +0.3%)

     FACTORS: Business inventories fell unexpectedly in the second quarter due

mainly to a large 2.4% q/q drop in wholesale trade inventories, which fell for

the first time in six quarters. Retail trade inventories were flat q/q after

rising each of the previous three quarters by between 1.0% and 1.2%, while

mining inventory growth slowed sharply to a 0.3% q/q rise in Q2 from a 8.0%

increase in Q1. This was partly offset by a rise in manufacturing inventories,

which were up 0.8% q/q after falling the previous 10 quarters. 

     Company gross operating profits fell in Q2, marking the first decline in

five quarters, due  largely to an 11.5% q/q drop in mining profits, which

declined for the first time in five quarters. Profits in the rental, hiring and

real estate services fell 4.0% q/q, retail trade profits fell 0.5%, wholesale

dropped 3.1% and construction fell 1.0%. Some of these declines were offset by a

rise in manufacturing profits, but these slowed to a 1.6% q/q rise in Q2 from

3.2% in Q1. 

     Wages and salaries rose sharply in Q2, the biggest increase in at least

eight quarters, for the  second consecutive quarterly gain. Wages were driven

mainly by a 2.0% q/q rise in professional and technical services in Q2 that

followed a 0.4% rise in Q1. Electricity and related sectors saw a 2.1% jump and

manufacturing wages rose 1.4% -- the first increase in five quarters.

     TAKEAWAY: The fall in inventories means it could make a substantial

detraction from Q2 GDP and could lead to a downward revision in economists'

forecast for GDP. Currently, the median forecast of an MNI survey stands at

+0.8% q/q and +1.8% y/y. The fall in company profits was close to the MNI

forecast while the surge in wages and salaries was also in line with

expectations, though economists didn't issue a formal forecast on this. 

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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