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AAP

2012-12-03

Company profits are down for a fourth consecutive quarter, driven lower by a 12.2 per cent fall in mining profits.

Gross operating profits in current prices and seasonally adjusted terms fell 2.9 per cent in the September quarter and were down 13.0 per cent in the 12 months to September 2012, the Australian Bureau of Statistics (ABS) said on Monday.

Estimated business inventories - unfinished goods and finished goods as yet unsold - rose 1.1 per cent in the September quarter.

RBC Capital Markets currency strategist Michael Turner said recent falls in commodity prices pulled mining profits lower and pushed inventories higher.

"There was a soft undertone to that data," he said.

"The well-documented developments in spot commodity prices during July to September seemed to prompt some predictable reactions in the mining sector; shipments were held back and profits were lower."

Mr Turner said the data firms up the chance of a quarter of a percentage point interest rate cut by the Reserve Bank of Australia (RBA) on Tuesday.

He expects another cut in the new year.

"The issue will be that the starting point output growth may well have been softer than they had assumed, judging by today's data," he said.

"We continue to expect that the cash rate will reach 2.75 per cent this cycle."

The business inventories data from the ABS also showed a 0.2 per cent fall, seasonally adjusted, in wages and salaries for the September quarter.

JP Morgan economist Ben Jarman said the continuing fall in profits is beginning to impact on households.

This (fall in wages and salaries) has not happened since early in 2009, which of course is when the unemployment rate hit its prior peak," Mr Jarman said.

"While hiring already has pulled back, the sales to wages ratio still is falling in the more cyclical industries like mining, construction, retail,

and real estate, indicating more job shedding to come."

Mr Jarman said this is evidence that the RBA has not yet cut its cash rate to a level that will stimulate the economy and expects an interest rate cut on Tuesday and another in the first three months of 2013.

The figures feed into the September quarter national account data released by the ABS on Wednesday, which includes gross domestic product (GDP).

"The broad weakness of the business indicators today suggests significant headwinds to the income side of the national accounts on Wednesday, at both the corporate and household level," Mr Jarman said.

The inventories build-up similarly suggests trade and consumer spending will underperform."

Mr Jarman said he is currently sticking with JP Morgan's forecast of GDP growth of 0.4 per cent for the September quarter, the median market forecast is 0.6 per cent.

Jason Cadden