CommSec State of the States – October 2023

Overall results

• 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 15th 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 a solid job market and strong population growth at a time of rising interest rates.
• Australia’s state and territory economies are slowing in response to higher borrowing costs and price pressures. The future path of economies will depend on the response of inflation to higher interest rates.
• In the latest survey there is little to separate six of the state and territory economies. Victoria has surprised, jumping from fifth to first position. Victoria was consistently firm across all the indicators, improving its ranking on four of the eight indicators.
• South Australia is now in second position, ahead of NSW and Queensland.
• South Australia ranks first on relative unemployment. NSW ranks second or third on four indicators. Queensland ranks first on home lending.
• Behind Queensland is Western Australia, remaining in fifth position, ahead of Tasmania. There is little to separate the top six economies.
• The ACT is ranked seventh ahead of the Northern Territory.
• We acknowledge that the decade-average method disadvantages the Northern Territory. Significant LNG construction over 2012–18 inflated a range of economic indicators. So we highlight rankings of economic momentum—that is, the annual growth rates for the eight indicators.
• Western Australia now heads the leader-board of annual growth rates, ahead of NSW, Victoria and Queensland in joint third position.South Australia is fifth; the ACT is sixth. Then the Northern Territory is seventh, ahead of Tasmania.
• Western Australia leads other states and territories on annual growth rates for three of the eight indicators.
• NSW, South Australia, the Northern Territory, Queensland and the ACT all lead on one indicator.. .

Analysis

• While Victoria now claims first position on overall economic performance, it faces challenges from four other economies. Even Western Australia could post a challenge to Victoria, given its current momentum.
• However, Victoria was consistent in the latest survey – first, second or third on five of the eight indicators.
• Looking ahead, trends in consumer spending and migration are important to watch as well as the US and Chinese economies.
• Success achieved in lowering inflation expectations, balancing supply and demand, and thus reducing the rate of inflation will determine the path of interest rates and economic activity across all states and territories.

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 rates in NSW stood at 3.3 per cent in September. However, the NSW unemployment rate was 32.9 per cent below its decade average, while the South Australian jobless rate of a record low 3.7 percent was 38.9 per cent below its decade average. So South Australia ranks above NSW on this indicator.
• Seasonally adjusted or trend measures of the economic indicators were used to assess performance on all measures. The preference was for the less volatile trend measures. Original data is used to assess population growth.

Read the report.