The Australian economy has just completed its 21st year of growth; the last recession ended in the June quarter of 1991. It is the longest expansion in Australia’s history.
- In 2011/12, the economy grew by 3.4 per cent, slightly above the long-term average of 3.25 per cent.
- The economy grew by 0.6 per cent in the June quarter to stand 3.7 per cent higher than a year ago.
- The biggest contributions to growth came from exports (+0.5 percentage points), followed by household spending (+0.3pp), government consumption (+0.3pp), and non-dwelling investment and public investment (each +0.2pp). The biggest drag on growth was by inventories (-0.3pp), imports (-0.2pp), the statistical discrepancy and dwelling investment.
- The best description of the performance of States and Territory economies is state final demand plus net exports. The Northern Territory had the fastest annual growth in the June quarter (up a staggering 32.0 per cent), followed by Western Australia (up 13.3 per cent), Queensland (up 7.5 per cent), ACT (up 6.8 per cent), NSW (up 4.2 per cent), Victoria (up 1.8 per cent), South Australia (up 1.2 per cent and Tasmania (down 2.4 per cent).
- Just seven of the 19 industry sectors contracted in the June quarter. Mining and manufacturing each detracted 0.1 percentage points from economic growth while a raft of sectors equally added around 0.1pp to growth.
- Gross value added per hours worked in the market sector fell 0.2 per cent in the June quarter after stellar growth of 2.0 per cent in the March quarter. Annual productivity growth is a respectable 2.7 per cent.
- Over 2011/12, consumers spent 12.7 per cent more on electricity and gas with tariffs ups 10.2 per cent and real demand up 2.4 per cent. We spent 10.1 per cent more on water & sewerage rates.
What does it all mean?
- Well finally the 2011/12 year is all wrapped up and now we can officially state that Australia has completed its 21st year of economic growth. And while the record breaking performance is of little practical benefit for many sections of the economy, it does provide a boost to consumer and business confidence. And in these uncertain times, that is highly valuable.
- The national accounts are basically an historical document. And while the 0.6 per cent growth for the quarter was a touch below forecasts, the 3.7 per cent annual growth was in line with forecasts. In short, no major surprises. The data is ancient history but it also provides a base for forecasts and for analysis of prospects for individual sectors of the economy.
- The economy is growing, consumers are saving, productivity is strong and labour costs are growing only modestly. Certainly it is beautiful set of numbers.
- We expect another year when economic growth is more likely to be in line with longer-term averages or slightly above, rather than something approaching the below-average outcomes from 2009-2011. Growth around 3.5 per cent is expected in 2012/13. Business investment in resource sectors should again be the mainstay of growth, but dwelling construction is expected to lift from depressed levels and household spending should continue to grow in line with longer-term averages.
- Hopefully we will hear less bleating about productivity. Productivity has predictably rebounded as business beds down the tremendous employment and capital spending growth of 2009-2011.
- Broadly, consumer spending is OK. Consumers saved more in the June quarter and spent less. But the job market remains in good shape, real wages are rising, home prices have stabilised and share prices are trending higher, albeit with a pronounced zig-zag shape.
- CommSec still sees the risk that the Reserve Bank will have to cut rates again to support economic growth. Europe faces the prospect of a long, slow path of economic recovery; the US is experiencing a jobless recovery; and China is hesitant about stimulating growth given the risk of over-stimulating the property sector.
What do the figures show?
- Economic Growth: The economy grew by 0.6 per cent in the June quarter, after upwardly-revised growth of 1.4 per cent in the March quarter (originally reported as a 1.3 per cent rise). Annual economic growth slowed from 4.4 per cent to 3.7 per cent, still well above the long-term average of 3.25 per cent.
- In 2011/12, the economy grew by 3.4 per cent – the fastest growth in four years.
- The non-farm economy grew by 0.6 per cent in the June quarter after a 1.3 per cent rise in the March quarter. Annual growth stands at 3.6 per cent.
- Farm GDP rose by 0.4 per cent in the quarter and was up 7.0 per cent over the year.
- At current prices, GDP grew by 1.0 per cent in the quarter and by 3.2 per cent over the year.
- GDP per person rose by only 0.2 per cent in the quarter to be up just 2.2 per cent over the year.
- Growth drivers: The biggest contribution to growth came from exports (+0.5 percentage points), followed by household spending (+0.3pp), government consumption (+0.3pp), and non-dwelling investment and public investment (each +0.2pp). The biggest drag on growth was by inventories (-0.3pp), imports (-0.2pp), the statistical discrepancy and dwelling investment.
- Inflation: The best measure of domestic price pressures, the household consumption implicit price deflator, was up by 0.7 per cent in the June quarter after a 0.1 per cent increase in the March quarter with annual growth at just 1.6 per cent. Real non-farm unit labour costs rose by 0.2 per cent in the quarter and were up 2.0 per cent over the year.
- Productivity: Gross value added per hours worked fell by 0.2 per cent in the June quarter after stellar growth of 2.0 per cent in the March quarter. Annual growth stands at 2.7 per cent. GDP per hour worked rose 0.2 per cent in the June quarter to be up 2.9 per cent over the year.
- The best description of the performance of States and Territory economies is state final demand plus net exports The Northern Territory had the fastest annual growth in the June quarter (up a staggering 32.0 per cent), followed by Western Australia (up 13.3 per cent), Queensland (up 7.5 per cent), ACT (up 6.8 per cent), NSW (up 4.2 per cent), Victoria (up 1.8 per cent), South Australia (up 1.2 per cent) and Tasmania (down 2.4 per cent).
- Consumers still spending. Household consumption rose by 0.6 per cent in the June quarter, after gains of 1.8 per cent in the March quarter and 0.5 per cent in the December quarter. Annual growth stands at 4.0 per cent. Strongest growth of spending in the quarter was recorded by Purchase of vehicles (up 9.8 per cent), followed by Furnishings and household equipment (up 2.1 per cent) and Health (up 1.8 per cent). Just six of the 17 spending categories fell in the quarter led by Alcoholic Beverages (down 1.3 per cent).
- Detailed consumer spending data. The ABS provides detailed consumer spending data, but just in original (not seasonally adjusted or trend) terms. Over 2011/12, real household spending grew by 3.7 per cent with prices up 2.2 per cent. In other words spending rose 5.9 per cent in nominal terms. Consumers outlaid 12.7 per cent more on electricity & gas and 10.1 per cent more on water and sewerage rates. Consumers spent less on newspapers & books (down 2.6 per cent) and less on clothing & footwear (down 0.6 per cent).
- Industry sectors: Just seven of the 19 industry sectors contracted in the June quarter. Mining and manufacturing each detracted 0.1 percentage points from economic growth while a raft of sectors equally added around 0.1pp to growth.
Other points
- Profit share eases. In seasonally adjusted terms, the ratio of profits to total factor income fell from 27.1 per cent to 26.7 per cent in the June quarter. The wages share rose from 54.5 per cent to 54.7 per cent in the June quarter.
- Household savings rose. The household saving ratio lifted from 8.9 per cent to 9.2 per cent, in seasonally adjusted terms in the June quarter. In trend terms household saving fell for the fourth consecutive quarter, easing from 9.2 per cent to 9.1 per cent.
- Imports rose as a share of spending. The imports to sales ratio rose from 0.374 in the March quarter to 0.383 in the June quarter.
- The inventory to sales ratio fell from 0.621 in the March quarter to 0.610 in the June quarter.
What is the importance of the economic data?
- The quarterly National Income, Expenditure and Product release (national accounts) from the Bureau of Statistics is the most complete assessment of Australia’s economic performance. Detailed estimates are provided on incomes (wages, profits), spending (such as household, dwelling investment and trade (exports and imports) and production (comparing industry performance). Other data includes household saving and the economic performance of States and Territories.
- The main use of the national accounts figures is as a historical record of economic performance. The information has little forward-looking value for currency, interest rate or share markets.
What are the implications for interest rates and investors?
- There are no real surprises in the national accounts. The Australian economy is growing slightly above its long-term average pace, the mix of growth is good, productivity remains firm and inflation pressures are contained.
- One of the biggest surprises is the marked variation in performance across states and territories. Growth rates in the resource states and territories are soaring whereas the manufacturing states are struggling. And the Tasmanian economy is going backwards, a result that should prompt a response by the Federal Government. Gains of the mining boom should be spread around, and assistance should be provided to struggling regions to assist with structural adjustment.
- The outlook remains murky, as evidence by struggling European and US economies, policy uncertainty in China and investment cutbacks by Australia’s miners. But the Reserve Bank is well placed to cut rates if necessary. Indeed the Federal government is also well placed to add stimulus given the low budget deficit and low government debt levels.