Dragged down by costs, the profit growth rate of industrial enterprises slowed down in October. The destocking of finished products is still ongoing, which will weigh on corporate profits in the coming months.
Qin Taiwen. According to the data of the National Bureau of Statistics, from January to October, the total profit of industrial enterprises above designated size in the country was 61,154200 million yuan, down 7 percent year-on-year8%, the decline was 1 percent narrower than that from January to September2 percentage points (on a comparable basis).
In a single month, the year-on-year growth rate of profits of industrial enterprises fell sharply by 9 in October2 percentage points to 27%, down for the second consecutive month from the August peak. The year-on-year growth rate of profits of industrial enterprises fell in October, mainly due to the deepening of cost drag, which offset the slight improvement in revenue and the repair of investment income, and the road to profit improvement encountered certain twists and turns.
The profit data of industrial enterprises in October showed three major structural characteristics: first, from July to September, the superposition base was lower, and the growth rate of operating costs in October rose by 22 percentage points to 32%, the total profit growth rate reversed from the previous upward support to a sharp drag of 42 percentage points. Second, in October, under the continuous promotion of mass consumption, the total retail sales of consumer goods increased slightly more than expected, and the year-on-year growth rate of industrial enterprises' revenue rose slightly by 13 percentage points to 25%, the contribution to the year-on-year growth rate of profit increased slightly by 06 percentage points. Third, the low base and the improvement in the confidence of the capital market led to a significant increase in the contribution of other profits including investment income in October.
The manufacturing industry is greatly affected by the drag of costs such as the first month, and the monthly profit growth rate has declined significantly. Affected by the low base and the increase in electricity demand caused by weather fluctuations, the cumulative profit of public utilities from January to October increased by 13 percentage points to 400%；The manufacturing industry was more directly affected by the cost impact of upstream and coal in the early stage, and the year-on-year growth rate of manufacturing profits in October fell by 126 percentage points to -44%。
In the manufacturing industry, the profit of the raw material manufacturing industry, which is closer to upstream commodities, was still as high as 22% year-on-year in October9%, driven by the slightly better than market expectation performance of consumer goods retail, consumer goods manufacturing profits increased for the third consecutive month, with a year-on-year increase of 2 in October2%；The profits of the three major equipment manufacturing industries, including electrical machinery, railways, ships, aerospace transportation equipment and general equipment, increased respectively1% and 104%, the growth rate is faster.
The destocking of finished products has accelerated sharply, and the stage of rapid destocking is still continuing, suppressing the potential improvement in profits. In October, the year-on-year growth rate of nominal inventories of finished products fell by 1 again1 percentage point to 20%, after deducting the ** factor, the actual year-on-year growth rate of finished product inventory in the month also fell by 10 percentage points to 47%, a new low in nearly 23 months, indicating that the actual destocking process is still accelerating. Judging from the inventory cycle in previous years, the actual growth rate of finished goods inventory at the bottom is about -2% to 2%, and the current accelerated destocking stage has not yet ended, and will continue to suppress the growth rate of corporate profits in the next few months, but it is also expected to see a fairly steep slope of accelerated improvement in the profits of industrial enterprises after the inventory bottoms out.
Looking forward to the first quarter of 2024, cost pressure may be eased, but at the same time as accelerating destocking, the demand for industrial products is about to usher in a phased pullback in growth caused by a high base, and it is expected that the profit growth rate of industrial enterprises may experience a twists and turns in the process of improvement.
After the two sessions in 2024 and by the end of the year, if the following three conditions are realized: (1) housing prices in first- and second-tier cities are generally expected to stabilize (even if "volume shrinkage and price stability" is acceptable), and the speed of residents' deleveraging will be significantly slowed down; (2) After the issuance of trillions of yuan of budgetary treasury bonds in the fourth quarter of 2023, the ** Economic Work Conference and the 2024 "Two Sessions" have reconfirmed the start of a new round of fiscal expansion cycle, and confirmed the fiscal deficit by the "Two Sessions" in 2024 at the latest (we expect the deficit rate to be about 3 in 2024).5%), the additional expansion part will be used to implement large-scale individual income tax cuts to stimulate residents' permanent income expectations, and pass on to the consumption and domestic demand side in a larger proportion; (3) Monetary policy implements coordinated and reasonable easing through large RRR cuts and small structural interest rate cuts to stabilize long-term interest rates and exchange rate levels, while improving interbank and real economic liquidity. Then, we have reason to expect that the profits of industrial enterprises from the second quarter to the fourth quarter of 2024 will be expected to obtain a promising path under the joint promotion of effective investment and optional consumption, as well as the slope enhancement of destocking.
The author is the assistant director of the Huajin ** Research Institute and the chief macroeconomic and financial real estate analyst).