The record-breaking economic expansion has notched up another quarter of growth. The Australian economy grew by 0.5 per cent in the September quarter to stand 3.1 per cent higher than a year ago.
- The biggest contributions to growth came from business equipment spending (+0.4 percentage points), followed by inventories (+0.3pp), household consumption (+0.2pp), and net exports (+0.2pp). The biggest drag on growth was by public investment (-0.4pp), the statistical discrepancy (-0.2pp) and government consumption (-0.1pp).
- 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 September quarter (up a staggering 60.2 per cent), followed by Western Australia (up 10.3 per cent), ACT (up 5.6 per cent), NSW (up 3.8 per cent), Victoria (up 2.5 per cent), South Australia (up 1.5 per cent), Queensland (up 1.1 per cent) and Tasmania (down 5.3 per cent).
- Just seven of the 19 industry sectors contracted in the September quarter. Mining contributed 0.4 percentage points to economic growth with Manufacturing and Health care & social assistance both contributing 0.1pp. Biggest drags were by Agriculture, Transport and Professional services (each taking around 0.1pp from growth).
- Gross value added per hours worked in the market sector rose by 0.4 per cent in the September quarter. Annual productivity growth is a respectable 2.5 per cent.
- Eight of the 17 sectors recorded weaker spending in the quarter. Household spending rose 0.3 per cent in the September quarter.
- Household saving ratio eased from 10.9 per cent to 10.6 per cent; a measure of inflation – the household spending implicit price deflator – rose by 2.3 per cent over the year; real unit labour costs fell by 0.6 per cent in the quarter.
What does it all mean?
- Firstly, we should never get too excited by the quarterly economic growth figures or national accounts. While serving as a great report card on the economy, there is little in the way of forward-looking guidance for policymakers. Largely the figures allow the Reserve Bank to recalibrate their forecasts by plugging in the latest historical data and numerous revisions.
- Aussie consumers and businesses should be encouraged by the latest data. The record-breaking expansion continues, although the pace of growth is a touch weaker than the longer-term average. The good news is that growth is being driven by investment, not consumption; inflationary pressures are clearly contained; and productivity growth has lifted.
- The latest data confirms that Australia has the strongest economy of any advanced nation. The expansion is continuing and shows no sign of ending. And while the pace of growth has eased modestly, the Reserve Bank is attempting to lift momentum with the latest interest rate cut.
- The outlook for the economy is encouraging. There are no major imbalances to speak of, inflation is contained and recent rate cuts should serve to boost the pace of growth. Today’s data justifies yesterday’s decision to cut rates.
- CommSec expects the Australian economy to grow around its longer-term growth path of 3.0-3.25 per cent over the coming year.
- The main risks to the economy come from the external environment although domestically consumers and businesses need to become more confident and embrace the strong fundamentals. Further, residential and construction investment need to lift over the coming year as investment in the mining sector tapers off.
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?
- The national accounts data is backward looking. However the softer growth trend over the past six months justifies Reserve Bank decisions to cut rates since May. Inflation is not a risk, momentum has been flagging, so the economy was deserving of stimulus.
- The latest data further confirms the ‘haves’ and ‘have nots’ across the economy. Western Australia and Northern Territory are in good shape and, arguably, so is the ACT. But Tasmania continues to struggle while growth is weak in South Australia and Victoria. The Federal Government needs to be mindful of the sharp disparities in economic performance as it attempts to withdraw government stimulus from the economy.
- The good news is that productivity is healthy, private investment is driving growth and inflationary pressures are restrained. The concern is that dwelling investment is soft, consumers remain cautious and there are sharp disparities in performance across the states and territories.
- There is sufficient monetary stimulus in the economy but more may need to be applied to offset the retreating public sector and insulate the economy from global jitters. The Reserve Bank has plenty of ammunition available.