Aussie consumers drive solid economic growth

National accounts

• Record expansion: The record economic expansion is now in its 28th year. The Australian economy grew by 0.9 per cent in the June quarter after growing 1.1 per cent in the March quarter. Annual economic growth rose from 3.1 percent to 3.4 per cent – the strongest growth rate in almost six years. Over 2017/18 the economy grew by 2.9 per cent – the strongest gain in six years.
• Contribution to growth: The biggest contribution to growth came from household consumption (+0.4 percentage points) from government consumption (+0.2pp) and dwelling investment and net exports (both +0.1pp) Both non-dwelling construction and business equipment spending cut 0.1pp off growth.
• Income: Real gross national income rose by 0.4 per cent in the June quarter to be up 3.5 per cent on the year. In nominal terms GDP increased by 1.0 per cent in the quarter and rose by 5.5 per cent over the year.
• Productivity: Gross value added per hours worked in the market sector fell by 0.1 per cent in the June quarter, but was up by 0.4 per cent on the year. Hours worked in the market sector rose by 1.1 per cent in the June quarter and was up by 2.4 per cent on the year.
• Industry sectors: Seventeen of the 19 industry sectors expanded in the June quarter. Strongest growth was by “Other services” (up 2.2 per cent), from Professional, scientific and technical services and Construction (both up 1.9 per cent). Manufacturing (down 1.5 per cent) and Wholesale trade (down 0.2 per cent) recorded the biggest falls in output. Seven sectors added 0.1 percentage points to GDP growth. Only one sector detracted 0.1 percentage points from growth.

What does it all mean?

• You can’t do much better than repeat the comments of the Reserve Bank Governor. He noted that the economy is growing by around 3 per cent with inflation near 2 per cent and the jobless rate near six-year lows. “In the broad sweep of our history, these are a pretty positive set of numbers.”
• The 27th year of the current record economic expansion ended on June 30 (108 quarters of growth). The 28th consecutive year of growth began on July 1. There are good reasons to expect the expansion to continue for some time to come. We wouldn’t quibble with the Reserve Bank’s expectation of 3.25 per cent growth during 2018/19 – already the economy is growing at a faster rate.
• Looking forward there are a few challenges. Global trade discussions are on-going between the US and a host of other nations. If trade wars develop, that could work to slow global growth. Then there is the east coast drought that has the potential to trim economic growth directly as well as through knock-on effects to other industries and regions.
• It is important to highlight that Aussie consumers and spending and that the growth of spending is actually ‘above-normal’. There is so much misinformation concerning consumer spending, generally of the form that consumers are keeping a tight grip on their wallets. Wages are still growing faster than the cost of living while the stronger job market is adding to the economy’s spending power.
• Wages are lifting and unemployment continues to fall. Add in low and stable interest rates and there are good reasons to expect Aussie consumers to keep on spending. Home building, exports, business investment and spending on infrastructure will also support the economy over the next year.