A rise in company profits during the September quarter reflects high commodity prices and a peak in Australia's terms of trade, economists say.
Company gross operating profits rose 4.8 per cent in the September quarter, official figures showed.
Gross operating profits in current prices and seasonally adjusted terms rose 8.8 per cent over the year to the September, the Australian Bureau of Statistics (ABS) said.
RBC Fixed income strategist Michael Turner said the increase in profits reflected strong terms of trade and commodity prices during the quarter.
"The terms of trade peaked in third quarter and they have really been the key driver of operating profits for the last couple of years," he said.
"So higher commodity prices are feeding through into mining profits."
However, Mr Turner said the decline in inventories reflected a lack of confidence among businesses in the current global climate.
Estimated business inventories, in seasonally adjusted chain volume terms, fell 1.1 per cent in the September quarter after a downwardly revised 1.6 per cent rise in the June quarter.
Economists were expecting inventories to have risen by 1.2 per cent in the September quarter.
"Business confidence has been pretty low for most of the year so you'd suggest that some of that rundown in inventories is just a lack of confidence."
The drop in inventories was also likely to have implications for Australia's Gross Domestic Product figures, which will be released on Wednesday.
"It definitely adds some downside risk to most people's GDP number's I'd suggest."
The estimate of income from sales by manufacturers in the September quarter, in seasonally adjusted chain volume measures, was up 1.3 per cent.
Estimated income from sales by wholesalers in the September quarter in adjusted chain volumes measures was up 2.2 per cent.
ICAP senior economist Adam Carr said the business indicator data fed into a generally solid picture for the Australian economy in the third quarter.
"It's strong generally across the board, although there are some sectors of weakness," he said.
"Sales growth looks very strong, as well as retail, manufacturing, and obviously mining is doing really well.
"So it's a positive report, and it adds to the weight of evidence that Q3 will be a very solid quarter."
Mr Carr said that areas of weakness largely reflected global sentiment during the period.
"Inventories subtracted from growth fell, and I was expecting another increase," he said.
"But it makes sense when you think about the global context and caution - companies are looking to run down inventories.
"Production may be lower than expected, but demand is certainly very healthy."
Tomorrow's rate decision from the Reserve Bank of Australia would be a difficult one, given the divergence between a strong domestic economy and global uncertainty, said Mr Carr.
"It makes the decision so hard because if you look at Europe and Asia, we are seeing emerging signs of a credit crisis - we're not there yet, but there are signs," he said.
"But the domestic economy is very healthy, outside of housing.
"This will add to the case for them to hold - whether they do that or not will depend on whether they want to take a short-term insurance cut, given the tightening financial conditions."
Macquarie Group senior economist Brian Redican said the weaker than expected inventories figures was the key figures in Monday's business data.
"That points to some downside risk to the GDP growth forecasts out on Wednesday," he said.
"Overall sales were patchy between sectors but not too bad overall.
"Profits were fairly much in line with expectations.
"So in terms of what it means for policy makers and the perception of how the economy is looking in the September quarter, I don't think there will be too many surprises there, but it's the impact of having a big rundown of inventories in Q3 might prompt some people to trim their growth forecasts."
Mr Redican said Monday's data still point to a strong September quarter economic growth rate of close to one per cent being announced on Wednesday.
"In term of the overall message from the business indicators is there is really nothing to alarm people at the moment."
However he said economists will get a better idea of what the GDP figures will look like after the release of September quarter trade data on Tuesday.
