ASX closes lower after reaching new record high — as it happened

That’s the analyst consensus from the December quarter business indicators data released by the Australian Bureau of Statistics today.

Company profits grew 7.4%which was well above most expectations, but driven almost entirely by two big industries.

“Gains were narrowly focused in the mining (17% quarter-on-quarter) and finance (38% q/q) sectors, with more than half of the reported industries experiencing a profit contraction in the December quarter,” observed JP Morgan’s Tom Kennedy.

The biggest fall in quarterly profits came from retail (-10.9%), along with “other services” (-5.1%), and arts and recreation (-2.6%)which highlights the effect interest rate rises are now having on more discretionary consumption.

Other than mining and banking plus insurance, electricity and other utilities (+7.8%) and transport, postal plus warehousing (+5.1%) also saw very healthy quarterly profit gains.

The sector enjoying surging profits will surprise few who’ve had to pay a power bill or insurance renewal recently.

Even though narrowly concentrated, profits are likely to slightly boost GDP when it is released on Wednesday.

However, inventory will not, as businesses clear out excess stock.

The 1.7%/qtr decline in non-farm inventories was much larger than we had anticipated,” noted CBA’s Stephen Wu.

“Our calculations suggest that non-farm inventories will detract 1.0 percentage point from quarterly growth. There is likely to be some offset from the public and farm sectors, however.”

Ouch. That’s a big GDP shortfall to be made up elsewhere in order to avoid a negative quarter.

A decline in hours worked also meant that the 0.9% rise in the National Accounts wages bill was below the wage price index for the first time since the Delta COVID lockdowns in the third quarter of 2021.

“In Q4 23, employment rose by 0.7%/qtr. But hours worked decreased by 0.6%/qtr,” Wu observed.

“The fall in hours worked reflected the continued rotation of jobs growth back into part time employment (+2.7%/qtr) with full time employment falling (0.2%/qtr). We would note that our expectation of a lift in GDP even as hours worked falls will mean there will be an increase in productivity.

“By sector, quarterly outcomes were mixed. Four sectors recorded quarterly declines in their wages bill, with the others recording growth of between 0.5%/qtr (accommodation & food services) to 3.5%/qtr (utilities).”

The consensus of Economist forecasts are for GDP growth of 0.2%which would take the annual rate of economic expansion down from 2.1 to just 1.5%.

But most economists say, after seeing the partial figures so far, that the risk is of an even weaker number on Wednesday.

Obviously, at 0.2%, you can’t get a lot weaker without going backwards … and then we do start talking about the R-word, recession.