• How are Australia’s states and territories performing? Each quarter CommSec attempts to find out by analysing eight key indicators: economic growth; retail spending; business investment; unemployment; construction work done; population growth; housing finance and dwelling commencements.
• Just as the Reserve Bank uses long-term averages to determine the level of ‘normal’ interest rates; we have done the same with key economic indicators. For each state and territory, latest readings for the key indicators were compared with decade averages – that is, against the ‘normal’ performance.
• The State of the States report also includes a section comparing annual growth rates for the eight key indicators across the states and territories as well as Australia as a whole. This enables another point of comparison – in terms of economic momentum.
• The latest data indicates a two-tiered national economy with strength in the south-east states and territories, while there is little to separate the other state and territory economies.
• NSW has solidly held the position as the best performing economy, with strength very much broad-based.
• Victoria remains firmly in second spot, supported by strong population growth and housing activity.
• The ACT economy remains in third spot on the economic performance rankings with spending underpinned by higher home prices and a firm job market.
• Tasmania has been the big improver, moving from seventh to fourth with improving population growth providing momentum.
• Queensland has moved from sixth to fifth, underpinned by robust home construction.
• Northern Territory has eased from fourth to sixth spot but ahead of South Australia and Western Australia.
  Looking Ahead
• NSW remains solidly on top of the economic performance rankings but it may experience a challenge from either Victoria or the ACT over the coming year. Overall home building is providing solid momentum to the economy.
• Victoria remains in second spot on the performance rankings. And given solid growth in employment and population growth, the outlook for the economy remains encouraging.
• The ACT has comfortably held onto third spot in the performance rankings. The job market remains in good shape with consumer, business and housing spending providing solid support for the economy over the coming year.
• NSW, Victoria and ACT represent the top-tier of economies with little to separate the economies in the second tier.
• Tasmania has lifted from seventh to fourth spot with rising population growth boosting housing demand and supporting the job market.
•  Similarly Queensland is also being underpinned by a modest recovery in population growth, driving home demand. In fact home starts are more than 36 per cent higher than the decade-average.
• As we warned last quarter, the Northern Territory is losing momentum and indeed the economy fell from fourth spot to sixth on the performance rankings. The job market is strong but population growth is weak, affecting consumer spending and housing demand.
• The South Australian economy has potential to lift over the coming year. Higher home prices and real wage gains should support consumer spending.
• Higher mining and metal prices and record export volumes serve to boost the outlook for the Western Australian economy. Rural incomes also have scope to rise.

Methodology

• Each of the states and territory economies were assessed on eight key indicators: economic growth; retail spending; business investment; unemployment, construction work done; population growth; housing finance and dwelling commencements.
• The aim is to find how each economy is performing compared with “normal”. And just like the Reserve Bank does with interest rates, we used decade-averages to judge the “normal” state of affairs. For each economy, the latest level of the indicator – such as retail spending or economic growth – was compared with the decade average.
• While we also looked at the current pace of growth to look at economic momentum, it may yield perverse results to judge performance. For instance retail spending may be up sharply on a year ago but from depressed levels. Overall spending may still be well below “normal”. And clearly some states such as Queensland and Western Australia traditionally have had faster economic growth rates due to historically faster population growth. So the best way to assess economic performance is to look at each indicator in relation to what would be considered ‘normal’ for that state or territory.
• For instance, the trend jobless rate in the ACT of 3.7 per cent is the second lowest of all economies. But this jobless rate is 0.7 per cent lower than its ‘normal’ or decade-average rate, ranking it third on this indicator.
• Trend measures of the economic indicators were used to assess performance rather than more volatile seasonally adjusted or original estimates.

Read the report.

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