Another quarter of growth: The record-breaking economic expansion is currently in its 24th year. The Australian economy grew by 0.3 per cent in the September quarter after a 0.5 per cent increase in the June quarter. Forecasts had centred on 0.7 per cent growth in the economy.
The economy has grown 2.7 per cent over the past year, just below the decade-average growth rate of 2.8 per cent and below the 15-year average of 3.0 per cent.
Contribution to growth: The biggest contributions to growth came from net exports (exports less imports) (+0.8 percentage points), followed by household consumption and business equipment investment (both +0.3pp), government consumption (+0.1pp) and dwelling investment (less than +0.1pp). The biggest drag on growth was by business investment in buildings (-0.6 percentage points), followed by public investment (-0.2pp).
Weaker income: Income slowed as expected in line with weaker export prices. Real gross national income fell by 0.1 per cent in the September quarter.
States & territories: The best description of the performance of States and Territory economies is state final demand plus net exports. Northern Territory had the fastest quarterly growth in the September quarter (up 5.2 per cent), followed by Western Australia (up 3.7 per cent), ACT (up 2.0 per cent), NSW (up 1.7 per cent), South Australia (up 1.5 per cent). The Victorian economy contracted by 1.6 per cent in the September quarter with Queensland down 1.0 per cent and Tasmania down 0.1 per cent.
Industry sectors: Twelve of the 19 industry sectors expanded in the September quarter. “Other services” grew by 4.0 per cent, contributing 0.1 percentage points (pp) to growth in the quarter. The weakest sector was Construction (down 2.5 per cent, or 0.2pp) and Professional, scientific and technical services (down 2.4 per cent).
Productivity: Gross value added per hours worked in the market sector fell by 0.2 per cent in the September quarter after rising by 0.3 per cent in the June quarter. Annual growth stands at 1.8 per cent. GDP per hours worked rose by 0.3 per cent in the quarter to be up 2.4 per cent for the year.
Household spending: Only four of the 17 sectors recorded weaker spending in the quarter. Spending on Electricity, gas and other fuel rose by 3.7 per cent followed by Communications (up 3.5 per cent) and Clothing and footwear (up 1.7 per cent). But spending fell in Cigarettes & tobacco (down 2.1 per cent) and Purchase of vehicles (down by 1.3 per cent).
What does it all mean?
The Australian economy is still growing, and broadly as the Reserve Bank had expected. On the basis of current forecasts, the Reserve Bank had expected annual growth to slow to 2.5 per cent in the December quarter, and by all accounts growth will probably be broadly around 2.5-2.75 per cent at the end of the year. The Reserve Bank currently expects the pace growth of growth to lift in 2015/16 and through the 2016 calendar year. In short, the economy in evolving as expected, so the Reserve Bank is unlikely to be tempted to cut rates again.
The economic growth figures are backward-looking. That is, the latest data is for the September quarter when we already have economic statistics covering the month of November. And the latest available indicators are quite encouraging including data showing stronger business conditions, higher dwelling approvals, more positive consumer sentiment and increases in job advertisements.
The composition of growth in the September economy is encouraging with exporters, Aussie consumers and Aussie businesses all playing a role in boosting economic growth. And fears about the health of Aussie consumers can be discounted – compensation of employees rose 0.8 per cent in the quarter and 3.2 per cent over the year, underpinning healthy growth of spending.
Exports, consumer spending and home building will continue to support the economy over the coming year.
CommSec expects the economy to grow by around 3 per cent over 2014/15 with the pace of growth expected to accelerate in the second half of the 2015 calendar year. We think that the next move in rates will be up, but not until August 2015 at the earliest. While some analysts are tipping another rate cut, that could actually be counter-active – creating greater angst about the future amongst consumers and businesses.
Certainly if the economy needs more stimulus, inflation well contained. The broad measure of household inflation stands at just a 2 per cent annual pace. And at the same time productivity remains healthy.
What do the figures show?
National Accounts:
Economic Growth: The economy grew by 0.3 per cent in the September quarter, after 0.5 per cent growth in the June quarter. It was the weakest quarterly growth in 18 months.
Annual economic growth was steady at 2.7 per cent – just below the decade-average of 2.8 per cent. With long-term productivity growth around 1.8 per cent and with population growth near 1.7 per cent, there is scope for the economy to grow around 3.5 per cent without sparking inflation.
The non-farm economy grew by 0.3 per cent in the September quarter after a 0.6 per cent lift in the June quarter. Annual growth stands at 2.8 per cent.
Farm GDP rose by 1.5 per cent in the September quarter after falling 5.8 per cent in the June quarter and was down 3.9 per cent over the year.
At current prices, GDP fell by 0.1 per cent in the quarter to be up by 2.7 per cent over the year. The annual growth rate is well below the decade average of 6.2 per cent. Over the year to the September quarter, the Australian economy was valued at $1,593 billion.
Growth drivers: The biggest contributions to growth came from net exports (exports less imports) (+0.8 percentage points), followed by household consumption and business equipment investment (both +0.3pp), government consumption (+0.1pp) and dwelling investment (less than +0.1pp). The biggest drag on growth was by business investment in buildings (-0.6 percentage points), followed by public investment (-0.2pp).
Inflation: In terms of domestic price pressures, the household consumption implicit price deflator was unchanged in the September quarter with annual growth at 2.0 per cent. Real non-farm unit labour costs rose by 0.8 per cent in the September quarter after rising by 0.9 per cent in the June quarter. But real non-farm unit labour costs were down 0.5 per cent over the year.
Productivity: Gross value added per hours worked in the market sector fell by 0.2 per cent in the September quarter, the first fall in almost three years and after rising by 0.3 per cent in the June quarter. Annual growth eased from 2.1 per cent to 1.8 per cent. GDP per hour worked rose by 0.3 per cent in the quarter to be up 2.4 per cent over the year.
States & Territories: The best description of the performance of States and Territory economies is state final demand plus net exports. Northern Territory had the fastest quarterly growth in the September quarter (up 5.2 per cent), followed by Western Australia (up 3.7 per cent), ACT (up 2.0 per cent), NSW (up 1.7 per cent) and South Australia (up 1.5 per cent). The Victorian economy contracted by 1.6 per cent in the September quarter with Queensland down 1.0 per cent and Tasmania down 0.1 per cent.
Consumer spending lifts. Household spending rose by 0.5 per cent in the September quarter to be up 2.5 per cent for the year. Only four of the 17 sectors recorded weaker spending in the quarter. Spending on Electricity, gas and other fuel rose by 3.7 per cent followed by Communications (up 3.5 per cent) and Clothing and footwear (up 1.7 per cent). But spending fell in Cigarettes & tobacco (down 2.1 per cent) and Purchase of vehicles (down by 1.3 per cent).
Industry sectors: Twelve of the 19 industry sectors expanded in the September quarter. “Other services”grew by 4.0 per cent, contributing 0.1 percentage points (pp) to growth in the quarter. The weakest sector was Construction (down 2.5 per cent, or 0.2pp) and Professional, scientific and technical services (down 2.4 per cent). Mining production rose by 1.2 per cent in the quarter to be up 9.5 per cent over the year.
Other points:
Profit share falls. In seasonally adjusted terms, the ratio of profits to total factor income fell from 26.6 per cent to 26.3 per cent in the September quarter. The wages share rose from 53.1 per cent to an 18-month high of 53.4 per cent.
Household savings ratio eased. The household saving ratio eased from 9.5 per cent to 9.3 per cent in seasonally adjusted terms in the September quarter. In trend terms household saving eased from 9.5 per cent to 9.4 per cent in the quarter.
Imports flat as a share of spending. The imports to sales ratio eased slightly from 0.383 in the June quarter to 0.382 in the September quarter.
The inventory to sales ratio rose further from record lows, lifting from 0.626 in the June quarter to 0.636 in the September quarter.
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.
The economy has continued to grow, and while growth is OK, it’s not great. The decade-average growth pace is 2.8 per cent, and current growth stands at 2.7 per cent. In order to reduce unemployment, the economy needs to be growing by between 3.0-3.5 per cent.
The Reserve Bank has scope to cut rates if it wanted to, but we doubt that it would want to. Recent economic data has proved more positive and the fall in petrol price has potential to boost consumer and business spending. The lower Aussie dollar is also providing support to the economy.
The economy is undergoing transition from mining to non-mining sectors and it is a case of so far, so good. Exports are lifting and boosting growth despite lower commodity prices restraining incomes.
Latest data shows that employee compensation (or income) is up 3.2 per cent over the year while household sector inflation is only 2 per cent, so there is scope to lift spending.
With productivity still firm and real unit labour costs falling over the year, businesses have scope to take on new workers.
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 economy has continued to grow, and while growth is OK, it’s not great. The decade-average growth pace is 2.8 per cent, and current growth stands at 2.7 per cent. In order to reduce unemployment, the economy needs to be growing by between 3.0-3.5 per cent.
The Reserve Bank has scope to cut rates if it wanted to, but we doubt that it would want to. Recent economic data has proved more positive and the fall in petrol price has potential to boost consumer and business spending. The lower Aussie dollar is also providing support to the economy.
The economy is undergoing transition from mining to non-mining sectors and it is a case of so far, so good. Exports are lifting and boosting growth despite lower commodity prices restraining incomes.
Latest data shows that employee compensation (or income) is up 3.2 per cent over the year while household sector inflation is only 2 per cent, so there is scope to lift spending.
With productivity still firm and real unit labour costs falling over the year, businesses have scope to take on new workers.
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