The Experts

Business starts hiring again

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Good news for job seekers: The number of job advertisements rose by 3.0 per cent in February after an upwardly-revised 0.6 per cent increase in January.

Profits fall again: Company profits fell for the fifth straight quarter, dropping by 1.0 per cent in the December quarter. Profits stand 7.6 per cent lower than a year ago.

Profits in 2012: In calendar 2012, profits totalled $250.7 billion, down 6.8 per cent on a year ago and the biggest fall since 2009 (down 9.9 per cent).

Sales & inventories: Sales fell in six of 15 sectors in the December quarter while inventories rose for the fifth straight quarter, but only by 0.2 per cent.

What does it all mean?

If businesses are again advertising for staff, it is also likely that they are also stepping up hiring through other mechanisms such as social media, placement agencies and labour hire businesses. Clearly 2013 has started with some encouraging signs.

The Bureau of Statistics reveals that profits fell again in the December quarter, but as was apparent in the profit-reporting season for listed companies it is likely that a small number of companies and sectors account for the decline. In fact the ABS reveals that profits fell in only six sectors, but rose in nine sectors in the December quarter.

And the drop in profits is history. Consumer confidence is lifting, together with home sales and prices. And the latest data shows that employers also seem to be hiring again. So it makes sense that financial market traders only place a 14 per cent chance of a rate cut tomorrow. Stable interest rates is clearly good news for savers.

What do the figures show?

Business indicators

Company operating profits fell for the fifth straight quarter, dropping by 1.0 per cent in the December quarter. But while profits weakened, they only dropped in six of the 15 industry groups. Profits fell most in Administrative & support services, down by 15.4 per cent, while “Other services” fell by 6.6 per cent and Manufacturing lost 6.3 per cent. Mining profits also fell for the fifth straight quarter, down by 3.7 per cent.

But profits rose by 15.8 per cent in Professional, scientific and technical services and by 5.1 per cent in Retail trade.

Unincorporated gross operating profits fell for the fifth time in six quarters, down by 0.3 per cent in the December quarter. Business gross operating profits fell by 0.9 per cent. Company profits before tax fell by 6.3 per cent.

Inventories rose for the fifth straight quarter, but only by 0.2 per cent after a 1.2 per cent rise in the September quarter. Just like last quarter we assume that the increase in stocks was largely unintended, especially in Retail trade, up by 1.6 per cent. Inventories fell for the sixth straight quarter in Accommodation and food services, down by 6.3 per cent.

Sales fell in only six of the 15 industry sectors in the December quarter. Sales rose most in Arts and recreation services, up 5.9 per cent followed by Financial and insurance services, up 2.8 per cent. But sales fell 1.3 per cent in each of “Other Services”, Information media and telecommunications and Accommodation and food services. Sales rose 1.2 per cent in Mining, rose 0.7 per cent in Retail trade and rose 0.8 per cent in Manufacturing.

In current prices sales rose each of the states and territories except Tasmania (down 2.5 per cent) in the December quarter.

Wages & salaries rose by 1.4 per cent in the December quarter to be up 4.8 per cent over the year.

In the Mining sector the ratio of sales to wages fell over the past year from 9.59 to 8.01; the ratio of profits to sales fell from 0.42 to 0.35; and the ratio of inventories to sales rose from 0.25 to 0.31.

Job advertisements:

The combined number of internet and newspaper job advertisements, as tracked by ANZ rose by 3.0 per cent in February after an upwardly-revised 0.6 per cent increase in January (previously 0.9 per cent fall). Job ads are down 16.5 per cent on a year ago to 140,733 – the highest level in four months.

Newspaper job ads fell by 2.9 per cent in February while the far larger component of internet job ads rose by 3.3 per cent. ANZ provides data on newspaper job ads by state but given their minor importance in relation to internet ads and poor record in tracking total advertisements, the data is not useful for analytical purposes.








What is the importance of the economic data?

The quarterly Business Indicators publication by the Bureau of Statistics contains measures such as inventories, company profits and income from sales. Higher inventory (stock) levels can be either intentional or unintentional. If stocks are low and sales are expected to rise in the future, businesses will seek to build up stocks. However an unintentional build-up in stocks is where sales fall short of expectations, leaving more goods on the shelves than desired. If profits are increasing then this may point to increased capital spending and employment in the future. Rising profits are also a sign of favourable business conditions.

The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.

What are the implications for interest rates and investors?

The Reserve Bank can stay on the interest rate sidelines as the substantial rate cuts delivered over 2011 and 2012 do seem to be working to lift activity.

The lift in job ads represents good news for retailers, and housing-dependent and other consumer-dependent businesses.

Published: Monday, March 04, 2013

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