How are Australia’s states and territories performing?
Each quarter CommSec attempts to find out which state or territory is Australia’s economic leader. Now in its 14th year, the 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, enabling comparisons in terms of economic momentum.
Overall, the economic performances of Australian states and territories are being supported by strong job and commodity markets at a time of rising interest rates.
All states are performing well, supported by strong population growth, still-solid consumer spending, elevated commodity prices, stabilising home prices and low unemployment.
The future path of spending, housing and job markets will determine how economies perform over the second half of 2023.
Tasmania has regained top spot in the State of the States’ economic performance rankings, improving rankings on dwelling starts, relative unemployment and relative economic growth.
Tasmania ranks first on equipment investment, dwelling starts and relative unemployment. And it is second on housing finance.
Close behind in joint second position are Queensland and South Australia. Queensland finished on top in the previous survey while it is South Australia’s best ranking for just over a year.
NSW remains in fourth position.
Behind NSW in joint fifth are Victoria and Western Australia followed by the ACT. There is little to separate these four economies. And the Northern Territory ranks eighth.
In terms of the leading positions on the economic indicators, as noted Tasmania leads the rankings on relative unemployment, dwelling starts and equipment investment.
Queensland leads on relative population growth.
The ACT leads on housing finance.
Western Australia leads on relative economic growth.
South Australia leads on construction work done.
Victoria is top ranked on retail spending.
When looking across annual growth rates of the eight economic indicators, Tasmania, the Northern Territory and Queensland each led annual changes on two of the eight economic indicators.
And the ACT and Western Australia each led on one indicator.
Analysis
Last quarter we noted that housing and job markets would prove crucial to the performance of state and territory economies. A solid job market provides valuable support for the key indicators of housing purchase, new home building and retail trade.
Certainly the strength in jobs and housing starts was important in lifting Tasmania to top spot again and in consolidating South Australia in the top three economies. Queensland lost ground to these states on those indicators.
Looking ahead, the potential for stimulus in the Chinese economy will be important for resources and tourism-focussed states.
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 stood at 2.9 per cent in March with Tasmania’s jobless rate at 3.8 per cent. However, Tasmania’s unemployment rate was 37.7 per cent below its decade average, while the ACT jobless rate was 25.4 per cent below its decade average. So Tasmania ranks above the ACT on this indicator.
Except for economic growth, seasonally adjusted or trend measures of the economic indicators were used to assess performance on all measures. While preference was for trend measures, in many cases these have been suspended in the wake of the COVID-19 crisis. Rolling annual nominal data was used to assess economic growth.
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