Inventory levels decline, following a sharp run-up, confirming a large subtraction from Q4 growth. Sales reportedly stalled, pointing to sluggish conditions. Whereas profits rose strongly.
Inventories declined in the December quarter, contracting by 0.2%.
The Q4 fall in inventories was not as sharp as we anticipated, Westpac f/c -1.0% and market median flat (range, -1.0% to +1.4%).
However, incorporating revisions to Q3, the result confirms a large subtraction from Q4, an impact of -0.8ppts (-0.76ppts to decimal reports), broadly as we anticipated, a forecast -0.9ppts.
Recall that in Q3, inventories rose sharply.
We took the view that the Q3 rise was inflated by one-offs, namely: a jump in mining (transport links to ports disrupted) and a rise in retail, on an apparent bring forward to avoid supply chain disruptions.
In the event, both of those dynamics reversed, as we foreshadowed. Albeit a rise in wholesale inventories in Q4 cushioned the decline in overall inventories.
Sales stalled in the December quarter the Business Indicators (BI) survey reports, edging down by -0.1%.
While the BI sales measure provides only a broad guide to conditions (domestic demand and output) quarter to quarter (the fit is much better on annual basis), such a weak result shouldn’t be ignored.
Outside of lockdowns, that is the softest sales outcome since the second half of 2019.
As we foreshadowed in our GDP preview, on our figuring domestic demand potentially grew by only 0.3% in the December quarter – the weakest result outside of lockdowns since March 2019. We suspect that half of the economy (that is, excluding the consumer) may have been flat over the final months of 2022.
Company profits
The survey headline profit number (an accounting measure) posted a sizeable rise, up by 10.6%.
That was much stronger than expected, Westpac forecast +1.0%, market median +1.8% (range -2% to +6%).
As we highlighted previously, in the BI survey fluctuations in the value of inventories (due to price movements) is booked as a profit / loss – while the national accounts look through this.
Recall that in Q3, the BI survey reported an exaggerated fall in profits, down by -12.4% (revised to -11.3%), while the national accounts estimate declined by -4.7%.
For Q4, on an adjusted basis, company profits ex finance rose by around 6%. That is stronger than the -1% we anticipated on this basis.
A word of caution, the extent of unknowns on the Income side of the accounts is considerably greater than that for the Expenditure side – hence we are a little wary of taking our cue from this upside on profits.
