CommSec State of the States – January 2019

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Overall Results

  • How are Australia’s states and territories performing? Each quarter CommSec attempts to find out by analysing eight key indicators: economic growth; retail spending; equipment 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, the 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.
  • NSW & Victoria now share the honour of the best performing Australian economy while the ACT is not far back in third spot.
  • Tasmania is in fourth spot. Then there is a gap to South Australia and Queensland. And there is another gap to Western Australia and the Northern Territory.
  • NSW and Victoria each benefit from solid population growth and strong job markets, driving retail spending and business investment.
  • The ACT retains third spot on the performance rankings with strength in the building and purchase of homes.
  • Tasmania is in fourth spot with a lift in population growth driving new home construction and business investment.
  • South Australia remains in fifth spot ahead of Queensland, with the former retaining its position courtesy of firm business investment and construction work.
  • Western Australia is now in seventh position just ahead of Northern Territory.

Looking Ahead

  • Last quarter we noted that “There is little to separate Victoria from NSW. It is possible the two states could exchange rankings over the next year.” That observation has proven correct.
  • Both states have broad-based economic strength, underpinned by population growth, construction and investment activity. Strong job markets provide support for local economies but home building will soften in the period ahead.
  • Over the quarter NSW and Victoria traded spots on a number of key indicators. But Victoria fell two places in the relative ranking on dwelling starts.
  • The ACT remains in third spot on the performance rankings. The biggest move on the individual indicator rankings was a lift from sixth position on dwelling starts to the number one spot.
  • Tasmania is still in fourth position. In contrast to the ACT the biggest change in the individual rankings was a drop from third to fifth position on dwelling starts.
  • South Australia remains in fifth position in the rankings, improving its relative positions on equipment spending and housing finance but falling on dwelling starts and jobs.
  • Queensland is in sixth position in the performance rakings. While its relative position changed on five indicators it hasn’t been able to close the gap with South Australia.
  • Western Australia is now in seventh spot with the Northern Territory in eighth position.
  • In Western Australia, equipment investment is near 4-year highs and there are reports of strong demand for mining workers. And encouragingly exports are rising strongly in the Northern Territory.

Methodology

  • Each of the states and territory economies were assessed on eight key indicators: economic growth; retail spending; equipment 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 assess 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 3.6 per cent is the lowest of all economies. And this jobless rate is 8.3 per cent lower than its ‘normal’ or decade-average rate. However Victoria’s unemployment rate, while higher at 4.4 per cent, is actually 22.6 per cent below its decade average, putting it ahead of the ACT on this indicator. The Victorian jobless rate is actually at decade lows in trend terms.
  • Except for economic growth, trend measures of the economic indicators were used to assess performance on all measures rather than more volatile seasonally adjusted or original estimates. Rolling annual nominal data was used to assess economic growth.

Read the full report.

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