GDP growth stronger than expected, Manufacturing growth slows: Economy Roundup

Australian economic activity grew by 1.2% in the June quarter due partly to rising commodity prices helping increase international trade, according to the latest figures released by the Australian Bureau of Statistics.

The result brings annual growth to a stronger-than-expected 3.3%.

In seasonally adjusted terms, non-farm GDP grew 1.2%, with terms of trade rising 12.5% and real gross domestic income rising by 4%. The main contributors to expenditure in GDP were household final consumption expenditure, up 0.9 points, and net exports, up 0.4 points.

The largest negative contributor to GDP was the change in inventories, down by 0.7 percentage points. Construction contributed 0.3 points, with mining and professional, scientific and technical services all contributing 0.1 points each.

Meanwhile, manufacturing growth slowed during August due to output and new orders expanding at a slower pace, although employment has increased, according to the latest Australian Industry Group-PriceWaterhouseCoopers performance of manufacturing index.

The index fell by 2.7 points to 51.7, although it is still above the 50-point level separating expansion from contraction.

“In particular, the stronger performance of the clothing & footwear and wood products & furniture sub sectors is encouraging and suggests that consumer demand may be picking up,” AIG chief executive Heather Ridout said in a statement.

“This is being supported by the healthy performance of the labour market over the past year.”

The survey’s measure of employment increased by 3.6 points to 51.3, with wage also growing by three points to 71. CommSec chief economist Craig James said in a statement the result was strong but also represented dangers in the economy, given the result is a five-month low.

“Any softening in manufacturing conditions would be negative for material suppliers and resources companies and could end up having knock-on effects for other businesses and consumer spending. Selling prices are still falling, pointing to pressure on profits.”

Nufarm has reaffirmed guidance for net operating profit between $55-65 million for the year to 31 July, however, it also said debt will be higher than previously forecast. It expects debt to e up 38% to $620 million, up from a previous forecast of $450 million.

“The higher debt is attributable to increased working capital levels at July 31 mainly due to higher than anticipated receivables,” Nufarm said in a statement.

“July sales were largely in line with company expectations but the collection of cash associated with those sales – and the majority of sales made in June – will not occur until after the end of the financial year.”

“Several of the company’s financiers have already provided waivers in respect of covenant breaches that result from Nufarm’s lower than expected profit result for the 2010 financial year,” Nufarm said.

The company’s shares were down nearly 3% this morning to $3.74.

Shares higher despite Wall Street fall

The Australian sharemarket has opened higher this morning despite a disappointing night in both European and American stock markets.

The benchmark S&P/ASX200 index was up 71 points or 1.62% to 4475.6 at 12.00 AEST, while the Australian dollar also opened slightly higher to US89c.

AMP shares gained 1% to $5.09, while Commonwealth Bank shares also rose 1.3% to $50.94. Westpac rose 2.2% to $22.18 as NAB also rose 2.2% to $23.72.

Meanwhile, Cougar Energy has said amidst its results that the uncertainty regarding a water contamination scare in Queensland continues, and the company cannot confirm whether it will be an ongoing concern. The company it also said it may not be able to continue operating.

“The company’s forecast working capital requirements for the next 12 months exceeds the company’s current cash position,” Cougar said in its full year results.

“This indicates a material uncertainty that may cast doubt over the company’s ability to continue as a going concern, unless additional capital can be raised,” it said.

The company also said that its ability continue operating will depend on raising new capital.

“Should (Cougar) be unable to continue as a going concern, it may be required to realise its assets and extinguish its liabilities other than in the ordinary course of business, and at amounts that differ from those stated in this financial report.”

Elsewhere, Virgin Blue has appointed former Insurance Australia Group executive Sam Moyston to its board, where she will now serve as a non-executive director.

Currently she serves as the director for the Institute of Sustainable Solutions at the University of Sydney, and has previously held positions in telcos including Optus, as well as serving as policy advisor to former prime minister Paul Keating.

QR National future at risk if bid goes ahead

As reported by the Australian Financial Review, QR National chief executive Lance Hockridge has reportedly told staff the company’s future is at risk if the Queensland Government accepts a bid for the company’s coal freight division.

“If you break up the company and sell the below rail separately it puts a big cloud over the future of the company,” he wrote.

In the United States, president Barack Obama has continued to address the nation’s disappointing economic recovery. In a televised address announcing the end of combat operations in Iraq, he said the Government is continuing to work on a solution.

“Today, our most urgent task is to restore our economy, and put the millions of Americans who have lost their jobs back to work,” Obama said. “This will be difficult. But in the days to come, it must be our central mission as a people, and my central responsibility as president.”

In New York, the Dow Jones Industrial Average gained 4.99 points or 0.05% to 10,014.72.