Q4 Business Indicators: Demand Firms, Margins Still Lag
Private non‑farm business inventories declined by 0.1% in the December quarter 2025. This outcome was a touch softer than Westpac Economics’ forecast of a flat result in Q4. Profits rose 5.8%qtr in Q4, rising in the mining (8.1%qtr) and non-mining (4.4%qtr: strongest quarterly rise outside of COVID since the December quarter 2016) sectors.
The final pieces of the puzzle for Wednesday’s December quarter National Accounts are falling into place. Today’s business indicators are consistent with our current forecast for Q4 GDP. We will provide a final estimate after tomorrow’s releases on government spending and the external sector.
Private non‑farm business inventories declined by 0.1% in the December quarter 2025. This outcome was a touch softer than Westpac Economics’ forecast (and the market median expectation) of a flat result in Q4. The net effect is that non‑farm private inventories are expected to contribute around 0.2ppts to GDP growth in the December quarter, consistent with our current Q4 GDP forecast.
As expected, the mining industry rebuilt some inventories (0.7%qtr) after the sharp rundown recorded last quarter ( -4.7%qtr). Outside of mining, outcomes were mixed. Inventories were run down further in consumer-facing industries, including hospitality (-3.0%qtr) and retail (-0.4%qtr). This is consistent with our view that consumer spending accelerated over the quarter, with the pickup in consumption imports insufficient to fully meet demand. Partly offsetting this, inventories in the utilities industry which increased by 3.7%qtr.
Total sales volumes rose 0.6% in the December quarter, with six-month‑ annualised growth running at around 2.5%. There was a broad-based pickup in sales, which grew in eleven of the 14 industries covered by the release, highlighting the positive demand backdrop.
Sales increased in the mining industry (1.2%qtr) and were more mixed across the non-‑mining sector. Strong gains were recorded in professional services (2.0%qtr), electricity generation (0.6%qtr), telecommunications (1.2%qtr), and several consumer-‑facing industries, including hospitality services (0.8%qtr). These gains were partly offset by declines in financial services (-1.8%qtr) and transport services (-0.1%qtr).
In year-ended terms, consumer-facing‑ industries have continued to recover from the lows of a year ago. Growth in arts and recreational services (2.1%yr), accommodation and food services (3.7%yr), other household services (5.5%yr), and retail trade (1.6%yr) have been trending higher, consistent with firmer household demand through 2025.
Growth in total sales volumes provides only a very general guide to private demand. Today’s update suggests that demand was firmer in the December quarter. However, this series is not a reliable quarter-to-quarter indicator of private demand and is not a direct input into the expenditure-side‑ estimates used in the National Accounts.
Headline company gross operating profits rose 5.8%qtr in the December quarter, following weakness earlier in the year. This outcome was stronger than Westpac Economics’ forecast for a 1.8%qtr lift in profits and the median market expectation of a 1.9%qtr increase over Q4.
The increase appears to have been broad-‑based, with profits rising in all but three industries (retail was flat; arts and recreation fell 3.5%qtr after a 6.0% increase in Q3; and administrative support was broadly flat following a 4.7%qtr rebound in Q3). Indeed, the non-mining‑ sector recorded a 4.4%qtr increase in Q4 — the strongest quarterly rise outside of COVID since the December quarter 2016.
Mining profits increased a solid 8.1%qtr, lifting year-‑ended growth to 4.6% — the first year-ended increase since the March quarter 2023. Higher commodity prices, particularly gold, are supporting profits in the industry. Further increases in the prices of key energy commodities following developments over the weekend should help drive additional‑ gains over coming quarters. This will also have a material impact on the Federal Budget, due to be released in May.
Outside the mining sector, there were strong gains in other household services (+10.4%qtr), professional services (8.8%qtr), transport services (8.9%qtr), accommodation and food services (6.1%qtr, and almost 15% in year-ended‑ terms), and construction (4.2%qtr and 3.0%yr). Consistent with this, business profit margins increased across hospitality, utilities, manufacturing, mining and construction over the quarter.
Growth in real (price-adjusted) sales and nominal profits has clearly picked up across consumer‑-facing‑ industries since 2024. This quarter also saw sales stabilise and increase across the broader business sector, with both profits and sales in professional services rebounding after falling sharply over the past year and a half.
On the ABS’ measure (gross operating profits over sales), business margin increases this quarter were confined to wholesale trade (+2ppts), manufacturing (+3ppts), utilities (+2ppts), rental and real estate services (+1ppt), and hospitality (+1ppt).
Despite the recent improvement, margins based on the ABS’ measure remain below their ten-year average across several industries, including construction and some other household facing sectors. With a cyclical upswing now underway, this suggests scope for further margin expansion ahead, which may add to upward pressure on inflation overtime.
As an accounting-based‑ survey, the Business Indicators data incorporate Inventories Valuation Adjustment (IVA) into the profit measure. From an economic perspective, IVA does not represent a true change in underlying profitability. This has been particularly important in recent quarters, with large swings in IVA contributing to volatility in reported profits. In the December quarter, IVA was $2,223m, which is $1,335m higher than the September quarter 2025 IVA of $888m.
After adjusting for this effect, we estimate that underlying profits still increased a solid 4.8%qtr. It is also worth noting that the ABS applies different seasonal adjustment factors to this series compared with the official measure of gross operating surplus published in the National Accounts.
Nominal wages growth, which measures the total wages bill (that is, hours worked multiplied by wages), rose 0.9% in Q4 2025, lifting year-‑ended growth to 5.6%. In consumer-facing‑ industries, wages growth appears to have strengthened further, consistent with firmer demand, with growth of 1.3%qtr and 6.7%yr.
This series provides only a partial read on total employee compensation, however, as wages paid outside the market sector are largely excluded from these set of indicators.
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