Profits in mining sector on the rise

Published at Sep 8, 2016, in Features

Australian company gross operating profits rose 6.9 percent in Q2 2016 on a seasonally adjusted basis. The result was largely driven by strong performance in the manufacturing and mining sectors writes Sam Green, Advisor at Options Educator, TradersCircle.

Far more than the 2.0% anticipated, and following a fall of 4.4% in the previous quarter.

Profits in the mining sector rose 14.2 percent on a seasonally adjusted basis, this was despite a fall in volumes, which would indicate a rise in prices received by the mining sector for the quarter.

Profits in the manufacturing sector rose 22.6% on a seasonally adjusted basis, with only a slight increase in volumes. This is a positive sign for Australia’s much-maligned manufacturing sector. This comes as Australian manufacturing PMIs have shown expansion in the sector for each of the thirteen months to July; with the expansion finally coming to a halt in August.

Profits in the constructing sector plunged during the quarter, falling 27.7 percent during the quarter, despite a rise in volumes, which may indicate that the supply of goods and services from the construction sector is starting to become saturated, after a period of strong property price growth.

A seasonally adjusted estimate for wages and salaries rose 0.8 percent during the quarter, with a rise of 2.8 percent for the year to the June quarter. With CPI tracking at an annualised rate of approximately 1 percent, this represents positive real wages growth, which is an encouraging sign for the Australian economy.

The rise in profits for the quarter came after a fall of 4.4 percent in the previous quarter. Despite the strong performance in the 2nd quarter, Australian company profits are exactly where they were a year ago on a seasonally adjusted basis; and they have fallen 4.3 percent on a trend basis.

Although the Q2 profits result was very strong, (and real wages growth in a developed nation is especially positive), there was no yearly growth in gross operating profits. Additionally, manufacturing and services PMIs have started to fall since the end of the quarter; and the strong quarterly profit growth is therefore not solid evidence of a robust economic turn-around in Australia.

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