Easing Profits Take Heat Off Rates
The Age
Tuesday September 4, 2007
THE corporate profit boom appears to be easing - but possibly not fast enough to stop the Reserve Bank lifting interest rates once more this year to quash inflation.
Ahead of a Reserve Bank board meeting today, Bureau of Statistics figures revealed that company profits grew by a softer than expected 1.4 per cent in the June quarter. It was the weakest quarterly result since the September quarter of 2006, although companies still notched up a record $47.3 billion worth of pre-tax underlying earnings as the mining sector rebounded from a soft patch to return positive profit growth. Economists and investors are adamant there will be no announcement this week of a rise in interest rates after the increase of a quarter of a percentage point delivered last month. But an increase this year to 6.75 per cent is still possible. The TD Securities-Melbourne Institute monthly inflation gauge grew 0.5 per cent in August after a 0.6 per cent rise in July. This suggests the annual rate is near the top of the Reserve's 2-3 per cent target band. TD Securities senior strategist Joshua Williamson said the Reserve was likely to postpone any rate move until after the next quarterly inflation data, due in October, probably during the federal election campaign. "Strong domestic demand adds to the risk that inflation will break out above the RBA's target band," Mr Williamson said. The profit figures were driven mainly by a 3.8 per cent jump in the mining sector. It recorded underlying earnings of $12.6 billion - still 11 per cent lower than a year earlier. The construction sector clocked up a 13.8 per cent jump as companies cashed in on the huge backlog of major infrastructure projects on order from state governments and the private sector. But manufacturing profits, choked by the stronger dollar, edged up just 1.6 per cent, while transport and storage profits slumped 9.6 per cent. Economists said it all pointed to weaker June-quarter economic growth figures, due today, after the scorching 1.6 per cent surge recorded for the March quarter. "Retail and housing-focused areas of the economy are starting to show a few cracks, impacted by weak residential construction and poor housing affordability," said CommSec chief equities economist Craig James. ABN Amro economist Kieran Davies said he had revised his prediction for June-quarter growth down to 0.3 per cent, warning that commodity prices had shown almost no growth since early last year. That compares with a consensus tally of 0.5 per cent growth from the March quarter, or 3.7 per cent from the year earlier-period. Meanwhile, an ANZ survey showed newspaper and internet job advertising had edged up 0.1 per cent in August. ANZ head of Australian economics Tony Pearson said it suggested employment growth would continue to slow.? For complete coverage of the national accounts figures, go to theage.com.au from 11.30am.
© 2007 The Age
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