Business

Inventories positive for third quarter GDP

Wages and salaries as well as business inventories have increased in the September quarter, and are seen as positive for third quarter GDP, economists say.

A rise in business inventories and a solid growth in wage bills is expected to offset lacklustre company profits in the September quarter and help bolster economic growth for the period.

Company profits in Australia showed a surprise decline in the third quarter of 2017, slipping 0.2 per cent on a seasonally adjusted basis, as coal and iron ore prices wound back to normal levels after a strong run earlier in the year.

Profits are still up 20 per cent over the 12-month period to September 30, data from the Australian Bureau of Statistics shows.

The mining sector, which accounts for nearly a third of company profits, showed a 3.3 per cent decline in the quarter, as lower commodity prices worked against increased export volumes.

Outside of mining, profits rose an overall 1.3 per cent but results were mixed.

Manufacturing profits fell 6.4 per cent, construction was down 0.5 per cent, and rental, hiring and real estate services slumped 9.2 per cent.

However, retail trade profits bounced back 4.3 per cent and wholesale trade showed a 2.6 per cent improvement, while profits in the financial and insurance services jumped 12.4 per cent in the quarter.

JP Morgan economist Tom Kennedy said the company profits data largely played to script.

"We expect a further decline in mining profitability into year-end given Australia's terms of trade are on track to record another large fall in the fourth quarter," he said.

Estimated growth in the wages and salaries bill was 1.1 per cent over the three-month period and 2.5 per cent higher for the year, according to seasonally adjusted figures.

This gain was primarily driven by strong jobs growth in the quarter, with economists estimating 109,000 jobs were added.

Estimated business inventories, in seasonally adjusted chain volume terms, rose 0.2 per cent in the September quarter, and were up 1.1 per cent in the year.

ANZ economist Felicity Emmett said while the numbers were broadly in line with expectations, the improvement in wages and inventory would be positive for GDP.

"On balance the business indicators data were modestly positive, with lacklustre profits offset by solid growth in the wages bill and a rise in inventories," she said.

"These numbers make us feel comfortable forecasting a relatively strong 0.8 per cent quarter on quarter rise in Q3 GDP."

The business indicators data comes ahead of the September quarter's gross domestic product figures, due out on Wednesday.