• 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 have slowed in response to higher borrowing costs and price pressures. The future path will depend on the response of inflation to higher interest rates.
• Australia’s state and territory economies have slowed as consumers respond to higher borrowing costs and price pressures. The future path will depend on the resiliency of the job market and interest rates.
• And while it was close, South Australia has gone back-to-back to lead the performance rankings. South Australia ranked first on four of the eight indicators.
• Western Australia is now ranked second with Victoria in third position.
• NSW, Queensland, the ACT and Tasmania couldn’t be split for fourth position. And the Northern Territory is eighth.
• We acknowledge that the economic performance ranking criteria disadvantages the small, open economy of the Northern Territory. As a result we highlight the annual growth rankings—a measure of economic momentum.
• Measuring annual growth rates of the eight economic indicators, Western Australia is in first spot ahead of Queensland. Victoria is third and the ACT is fourth. NSW is fifth ahead of South Australia in sixth spot followed by the Northern Territory and Tasmania in seventh and eighth spots respectively..

Analysis

• Last quarter we noted that South Australia, NSW and Victoria “are most likely to challenge for top spot”. While we were right about South Australia, Western Australia was the surprise, up from fourth to second.
• Western Australia gained ground in five indicators, especially economic growth.
• Looking ahead, South Australia, Western Australia and Victoria could conceivably take top spot in the next quarterly survey.  But apart from the Northern Territory, none of the other states and territory can be ruled out given solid population growth and firm job markets.
  

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 NSW stood at 3.7 per cent in March 2024. But the NSW unemployment rate was 23.5 per cent below its decade average, while the South Australian jobless rate of 3.8 per cent was 35.8 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.

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• 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 a solid job market and strong population growth at a time of rising interest rates.
• But 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 the top four of the state and territory economies.
• Tasmania has retained top spot in the State of the States’ economic performance rankings, improving its ranking on retail spending.
• Tasmania ranks first on equipment spending and dwelling starts.
• NSW remains in second position and has narrowed the gap with Tasmania. South Australia slips to third place.
• NSW ranks first on relative unemployment. South Australia ranks first on relative population growth.
• Behind NSW and South Australia in fourth spot is Queensland. Western Australia is fifth while Victoria slips to sixth. 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.
• Measuring annual growth of the eight economic indicators, NSW is first, ahead of Queensland with Western Australia, Victoria and South Australia in joint third place. The ACT is sixth, ahead of the Northern Territory and Tasmania.
• There are encouraging signs for the Western Australian economy. Western Australia leads other states and territories on annual growth rates for two of the eight indicators.
• NSW, South Australia, Tasmania, the Northern Territory, Queensland and the ACT all lead on one indicator.

Analysis

• While Tasmania remains in first position, it faces challenges from NSW. And while Tasmania leads on two indicators, it ranks eighth on relative population growth—pointing to slower economic activity ahead.
• NSW is the most consistent economy, leading on relative unemployment, and second or third on four indicators.
• Looking ahead, trends in population, the job market and housing should be closely monitored. As noted in the last survey, the potential for stimulus in the Chinese economy will be important for resources and tourism-focussed states.
• But clearly, the success achieved in lowering 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 the ACT and NSW both stood at 3.1 per cent in June. However, the NSW unemployment rate was 37.8 per cent below its decade average, while the ACT jobless rate was 19.6 per cent below its decade average. So NSW 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.

Read the report.

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A volatile run of employment numbers continued in December

There was a lot of noise in the December labour force numbers released today. In seasonally adjusted terms employment fell by 14.6k from a revised gain of 58.3k in November (originally reported as +64.0k). Consensus and CBA were expecting +25k.

As the facing chart shows the change in employment in seasonally adjusted terms was volatile throughout 2022 as the economy reopened from the covid lockdowns of 2021. Looking at the trend numbers provides a clearer picture. Employment growth slowed over the second half of 2022 from very high levels earlier in 2022. Trend employment growth was +26.5k in December, around the same level of employment required each month to keep the unemployment rate steady.

Full time employment rose by 17.6k in the month while part time employment fell by 32.2k. This continues the trend over the past three years where full time employment growth has outpaced part time growth.

The unemployment rate held steady at 3.5% (was revised up from 3.4% in November). The unemployment rate has averaged 3.5% since May 2022 and suggests the labour market is neither tightening nor loosening. An increase in the supply of labour has occurred to meet rising demand over the course of the last year.

This balance though is expected to shift over 2023. The rapid return of net overseas migration as noted here, when combined with a slower economy and reduced demand of labour should push the unemployment rate higher. Job vacancies are falling, albeit remain at an elevated level.  We expect the unemployment rate to lift to grind higher to ~ 4¼% by end 2023 as the economy grows below trend.

The participation rate fell from a record high of 66.8% to 66.6% in December. The underemployment rate rose to 6.1% in the month, from 5.8% in November. Hours worked fell by 0.5% in December and the annual pace of hours worked continued to slow, down to 3.2%/yr.

The number of people working reduced hours due to illness rose in December as another wave of covid occurred.  There was a 50% higher number of people working lower hours than in a normal December this month.

By state employment losses were largely contained to NSW (‑13.8k) and Victoria (‑13.2k). There were smaller losses in QLD (‑4.2k) and Tasmania (‑1.9k). NSW continues to have the lowest unemployment rate of all the states at 3.1% (ACT lower at 2.8%). QLD has the highest at 3.8%. There were small employment gains in SA (+2.9k) and WA (+4.0%).

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How are Australia’s states and territories performing?

• Each quarter CommSec attempts to find out. Now in its 13th 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.
• It is important to note at the outset that all states and territories are performing solidly. That is no small matter in an environment dominated by the Covid-19 virus with the frequent – but necessary – lockdowns and border closures. The aim is to protect the health of Australians while substantial stimulus and support measures protect economies.
• In a relative sense, and for the seventh quarter in a row, Tasmania holds the mantle of the best performing economy. Tasmania leads on four of the eight indicators and is second ranked on another three.
• There is little to separate the other economies. ACT is second; Western Australia and NSW are equal third; South Australia and Victoria are equal fifth; Queensland is seventh; and the Northern Territory is eighth.
• The ACT leads on equipment investment.
• NSW is number 1 on housing finance.
• Western Australia is strongest on relative economic growth.
• The Northern Territory leads on relative population growth.
• In terms of annual growth of the eight indicators, Western Australia top the annual changes on three measures; Northern Territory leads on two (and second on two indicators); while NSW and Queensland lead on one each.

Analysis

• When assessing overall economic performance, the important point to make is that all state and territory economies are performing well, supported by highly stimulative fiscal and monetary policies. Despite constant challenges from Covid-19, and lockdowns, construction is solid, while job markets are fundamentally in good shape.
• In relative performance though, Tasmania has certainly consolidated its top position well ahead of other economies.
• The success in suppressing the Covid-19 virus has meant Tasmania hasn’t been forced to lock down its economy to the same extent as other economies although it has had to close borders.
• There are few signs of Tasmania giving up the position as top performing economy in the next six months.
• There is little to separate the other states and territories although there remains a gap between seventh position and the Northern Territory economy.
• So identifying the economy to challenge Tasmania for top position is not easy. Much will depend on vaccination rates, and reopening of state and foreign borders. But stimulus applied by state and territory governments will be important.
• Queensland would be a key beneficiary of the opening of borders with inter-state and overseas tourism driving spending and employment. Queensland and Northern Territory will be supported by population growth and higher commodity prices.

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 seasonally adjusted jobless rate in both Tasmania and Victoria stood at 4.8 per cent in September. However, Tasmania’s unemployment rate was 26.2 per cent below its decade average, while the Victorian jobless rate was 16.1 per cent below its decade average. So Tasmania ranks above Victoria 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.

Read the full report.

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• Chinese economic growth: The Chinese economy (GDP) expanded by 11.5 per cent in the June quarter (consensus: +9.6 per cent) after a 10 per cent contraction in the March quarter. GDP grew at a 3.2 per cent annual rate in the year to June (consensus: +2.4 per cent), following a 6.8 per cent contraction in the year to March. Economic activity contracted by 1.6 per cent in the first six months of 2020 from a year earlier.
• China monthly activity data: Retail sales fell at a 1.8 per cent annual rate in June (consensus: +0.5 per cent). Industrial production rose at a 4.8 per cent annual rate (consensus: +4.8 per cent). Fixed-asset investment contracted at a 3.1 per cent annual rate (consensus: -3.3 per cent).
• Property investment: Chinese property investment expanded at a 1.9 per cent annual rate over the year to June (consensus: +1 per cent).
• Unemployment: The unemployment rate (nationwide survey-based jobless rate) fell to 5.7 per cent in June from 5.9 per cent in May (consensus: 5.9 per cent).
• Home prices: New home prices rose at a 4.9 per cent annual rate in June – unchanged from May.

The Chinese data is important for exporters, especially rural producers, consumer goods, mining and energy companies.

What does it all mean?

• China’s economy bounced back in the June quarter after contracting in the March quarter by the most since at least 1992 (when quarterly records began) due to the coronavirus health crisis. After plunging to record lows due to virus lockdowns in March, activity data continues to improve with retail spending, industrial production and fixed asset investment all steadily lifting as government restrictions are eased. China’s return-to-work rate has climbed to over 90 per cent with larger industrial enterprises – oil refineries, steel mills and construction companies – mostly resuming operations.
• The recovery from the virus shock, however, remains lopsided. The supply-side of the economy has responded more quickly with a robust rebound in manufacturing and infrastructure-related public investment. In fact, investment by state-owned enterprises (SOEs) was up 2.1 per cent in June from a year ago.
• But private sector investment (down 7.3 per cent from a year ago), domestic demand and consumption all remain weak as consumer-facing restaurants and tourism companies struggle to get ‘back on their feet’ – operating well below pre-pandemic levels.
• Despite a decline in unemployment, retail spending disappointed in June – remaining in negative territory – and National Bureau of Statistics spokesperson Liu Aihua confirmed that China will need to increase efforts to stimulate consumption in the second half of 2020. Disposable incomes for both urban and rural residents fell 1-2 per cent in the first half of the year, placing downward pressure on consumption. Spending on ‘big ticket’ items like furniture and autos were down in June from a year ago. But spending on staples like grains and food were up in a continuing sign of consumer caution around the pandemic.

What do the figures show?

• The Chinese economy (GDP) expanded by 11.5 per cent in the June quarter (consensus: +9.6 per cent) after a 10 per cent contraction in the March quarter. GDP grew at a 3.2 per cent annual rate in the year to June (consensus: +2.4 per cent), following a 6.8 per cent contraction in the year to March. Economic activity contracted by 1.6 per cent in the first six months of 2020 from a year earlier.
• Retail sales fell at a 1.8 per cent annual rate (consensus: +0.5 per cent) in June after declining at a 2.8 per cent annual rate in the year to May. Over the year to June, spending fell the most at restaurants/catering (down 15.2 per cent); petroleum (down 13 per cent); automobiles (down 8.2 per cent) and jewellery (down 6.8 per cent). But spending lifted most on cosmetics (up 20.5 per cent); beverages (up 19.2 per cent); and communications appliances (up 18.8 per cent).
• Industrial production rose at a 4.8 per cent annual rate in June (consensus: +4.8 per cent) after lifting at a 4.4 per cent rate in May. Over the year to June, production rose the most for auto manufacturing (up 13.4 per cent); telecommunications/computer (up 12.6 per cent); and specially-used equipment (up 9.6 per cent).
• Fixed-asset investment fell at a 3.1 per cent annual rate in June (consensus: -3.3 per cent) after declining at a 6.3 per cent rate in May. Over the year to June, investment by the private sector fell 7.3 per cent, but investment by state-owned enterprises increased 2.1 per cent. By industry, investment in textiles was down 22.4 per cent, followed by car manufacturing (down 20.9 per cent); and general equipment (down 18 per cent). But investment in utilities rose the most (up by 18.2 per cent), followed by healthcare & social works (up 14 per cent).
• Chinese property investment rose at a 1.9 per cent annual rate over the year to June (consensus: +1 per cent) following a 0.3 per cent contraction over the year to May.
• The unemployment rate (nationwide survey-based jobless rate) fell to 5.7 per cent in June from 5.9 per cent in May (consensus: 5.9 per cent).
• New home prices rose at a 4.9 per cent annual rate in June – unchanged from May.

What is the importance of the economic data?

• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.

What are the implications for investors?

• China’s economy is on the mend, but imbalances in the recovery remain. Policy support through fiscal spending, tax relief, cuts in lending rates and banks’ reserve requirement ratios have boosted factory production and state-sponsored infrastructure investment. Australia is benefiting from a strengthening in China’s iron ore demand – as construction activity picks up – with record shipments out of Port Hedland in June.
• Like Australia, China is also contending with setbacks – such as the recent Beijing virus outbreak and flooding in southern regions. But labour market conditions continue to improve. In the week ended July 10, data from Baidu showed searches for “shiye” (job losses in Chinese) were 28 per cent lower than the level in the week ended June 12. And consumer confidence could also be supported by the recent run up in the Chinese sharemarket to 5-year highs and the stabilisation of home prices.

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Data were assessed across 88 SA4 regions that tend to have populations of between 100,000 to 300,000 people. The data assessed included population growth, business counts, unemployment and home building approvals. The most recent data was compared with long-term averages (‘normal’ levels) to find the best performing economies.

The best performing regions were found to be Melbourne-South East; Sydney-Baulkham Hills and Hawkesbury; Melbourne-West; the Gold Coast; and Sydney-Blacktown.

Comparing regional economies

Every quarter CommSec assesses eight indicators to determine the best performing state and territory economies. There is no single ‘best’ way to determine relative economic performance. But use of a broad range of economic indicators with assessments against long-term averages determines the best-performing economies rather than identifying just the biggest or fastest growing economies.

Looking at the current pace of growth to assess economic momentum may yield perverse results to judge performance. For instance building approvals may be up sharply on a year ago but from depressed levels. Overall spending may still be well below “normal”. And focussing on regions with the fastest population growth would ignore those regions that are now growing faster than what would be considered ‘normal’ for that region.

Unfortunately only building approval and labour market figures are readily available for regions. Consistent and comparable data on population and business counts are available up to the 2017/18 year. So only four indicators can be used to determine Australia’s best performing regional economies. While assessment of a small number of indicators is not ideal, the results are useful as a basis for further research.

The SA4 level was chosen as a point of comparison as consistent results were available for regions of significant size ( . At the SA4 level there are 88 regions with consistent data to be assessed. The results can be further broken down to a SA3 level (358 regions) and SA2 level 9 (2,310 regions). Capital city areas can be excluded to focus on rural and regional areas.

The best performing Australian regional economies

The regions that consistently performed best across the four criteria were: Melbourne-South East; Sydney- Baulkham Hills and Hawkesbury; Melbourne-West; the Gold Coast; and Sydney-Blacktown

Given the strength of the Victorian and NSW economies, it shouldn’t be a surprise that regions within Sydney and Melbourne performed well in the survey. But Queensland’s Gold Coast is included in the top performing economies while the ACT, the non-metro Richmond-Tweed region, Sunshine Coast, Geelong and Illawarra were amongst the regions that performed consistently well on the four criteria.

The top regions

Melbourne-South East

The region includes around 40 suburbs and the SA3 regions of Cardinia, Casey-North, Casey South, Dandenong and Monash. Population stands near 840,000 and is growing around 3 per cent per annum. The number of businesses stand at around 70,000. The unemployment rate averaged 5.4 per cent in 2018. And there were over 10,000 council approvals to build new homes in 2018.

Sydney-Baulkham Hills and Hawkesbury

The region includes around 20 suburbs and the SA3 regions of Baulkham Hills, Dural-Wisemans Ferry, Hawkesbury and Rouse Hill-McGraths Hill. Population stands near 245,000 and is growing around 2 per cent per annum. The number of businesses stand at around 30,000. The unemployment rate averaged 3.0 per cent in 2018. And there were over 4,200 council approvals to build new homes in 2018.

Melbourne-West

The region includes around 20 suburbs and the SA3 regions of Brimback, Hobsons Bay, Maribyrnong, Melton – Bacchus Marsh and Wyndham. Population stands near 820,000 and is growing around 3.5 per cent per annum. The number of businesses stand at around 55,000. The unemployment rate averaged 7.1 per cent in 2018. And there were almost 12,000 council approvals to build new homes in 2018.

Gold Coast

The region includes around 60 suburbs and the SA3 regions of Broadbeach-Burleigh, Coolangatta, Gold Coast- North, Gold Coast Hinterland, Mudgeeraba-Tallebudgera, Nerang, Ormeau-Oxenford, Robina, Southport, Surfers Paradise. Population stands near 622,000 and is growing around 2.6 per cent per annum. The number of businesses stand at around 70,000. The unemployment rate averaged 4.3 per cent in 2018. And there were around 6,500 council approvals to build new homes in 2018.

Sydney–Blacktown

The region includes around 30 suburbs and the SA3 regions of Blacktown, Blacktown-North and Mount Druitt. Population stands near 370,000 and is growing around 2.5 per cent per annum. The number of businesses stand at around 23,500. The unemployment rate averaged 4.9 per cent in 2018 .And there were over 4,800 council approvals to build new homes in 2018.

State of the regions: Strongest by State/Territory

Sydney and Melbourne regions dominate the top rankings across the regions. But what regions are best performing in each state and territory? The ACT ranks highly in home building approvals but other regions are showing greater improvement on unemployment. In South Australia, Adelaide-Central Hills ranks highly on growth of businesses and building approvals. In Tasmania, Hobart ranks highly on home building approvals. In Western Australia, Perth-South West ranks highly on relative population growth. And in the Northern Territory, Darwin’s population is 7.3 per cent above the decade average although business numbers and building approvals are below decade-average levels.

Rural & regional areas

If we strip out metropolitan areas, which rural/regional areas are performing best? The Gold Coast is joined by Richmond-Tweed on the NSW North Coast, the Sunshine Coast, Geelong and the Illawarra, south of Sydney.

Richmond-Tweed, Geelong and Illawarra rank highly on relative population growth and building approvals. Sunshine Coast had an unemployment rate averaging 6.2 per cent in 2018, slightly above the decade average.

Strongest regions: Relative population growth

The Victorian population is growing at the fastest rate in Australia. So it shouldn’t be as surprise to find three Melbourne regions in the top five regions with the strongest relative population growth. (Compares the population in 2017/18 versus the average population over the past decade). The population of Sydney City and the inner south has been growing at a fast 2.9 per cent average annual rate over the past decade.

Strongest regions: Relative growth of business numbers

Sydney and Melbourne regions have actively been creating new businesses in recent years. In part this can be attributed to the growth of the ‘gig’ economy – ride-sharing, taxi and delivery services, home businesses and home-sharing, accommodation services like Airbnb.

Strongest regions: Relative growth of home building

The growth of new home building has been spreading outside Sydney and Melbourne in the past few years. The Central Coast, north of Sydney, as well as the Illawarra, south of Sydney, were amongst the best-performing regions for home building in 2018. The ACT, regional Victoria, Tasmania and Queensland regions have also been notable for relative home building growth.

Strongest regions: Relative unemployment

In the past four years, unemployment in Sydney’s Outer West and Blue Mountains has halved from 6.4 per cent to 3.2 per cent. A similar result has been achieved in the Far West, Orana region of NSW.

What does it all mean?

Just as it was demonstrated in the “CommSec State of the States” report, Victorian and NSW regions dominate the top positions in the State of the Regions report. But clearly with only four indicators to highlight relative economic performance, there are gaps in our knowledge about the current state of regional economies. Ideally data on spending, incomes and investment would assist our knowledge of current economic performance at a regional level.

The State of the Regions report does bring together the most recent economic indicators at a regional level and highlights results and trends useful for further analysis.

Population in all but eight of the 88 regions over the last financial year was ahead of decade averages with Melbourne, Brisbane and Sydney regions recording strongest growth. Home building was more mixed: 48 of the 88 regions had council approval numbers ahead of decade averages in 2018. Encouragingly, annual average unemployment rates in 51 of 88 regions in 2018 were below decade averages. At the other end of the scale, Queensland and Western Australian regions dominate the regions with unemployment above longer-term averages.

Also encouragingly, the number of businesses continue to expand across the country with increases in 64 of 88 regions compared with decade averages. In 2017/18 there were 8 per cent more businesses across Australia than on average over the past decade.

Craig James, Chief Economist and Ryan Felsman, Senior Economist 

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• Economy-wide spending is growing at the fastest rate in nine months according to the Commonwealth Bank Business Sales Indicator (BSI). The BSI, a measure of economy-wide spending, rose by 0.5 per cent in February after a similar lift in January. Spending growth remains above the 0.4 per cent long-term average monthly growth pace.
• The annual trend sales growth eased from 5.1 per cent to a 14-month low of 5.0 per cent in February, below the 5.5 per cent long-term average growth pace.
• The more volatile seasonally-adjusted measure of the BSI rose by 0.6 per cent in February, the eighth gain in 10 months.
• At a sectoral level, 13 of 19 industry sectors rose in trend terms in February, down from 14 sectors in January.
• Spending rose across all states and territories in February except Northern Territory.
• The Commonwealth Bank BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities. The BSI covers spending broadly across the economy rather than just retail sales, including spending on automobiles, personal services and airlines.

What does it all mean?

• Spending continues to lift across the economy at a faster pace than the long-term average. Travel-related spending remains healthy, perhaps reflecting a weaker Aussie dollar, lower petrol prices and a drop in airfares. The strength in domestic travel remains a positive driver for tourist regions.
• Business and government are restraining spending while consumers are cutting back on big-ticket purchases like cars.

What does the data show?

• The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by 0.5 per cent in trend terms in February after a similar rise in January. Economy-wide sales have now consistently lifted each month for over two years.
• The growth pace started lifting in March 2017 and over the period from October 2017 to January 2018 the BSI consistently recorded monthly gains of between 0.7-0.9 per cent a month. Growth in sales has held between 0.3-0.6 per cent a month for the past 13 months, picking up pace over December and January. Current growth is slightly above the long-term average pace of 0.4 per cent.
• The annual trend sales growth eased from 5.1 per cent to a 14-month low of 5.0 per cent in February, below the 5.5 per cent long-term average growth pace.
• The more volatile seasonally-adjusted measure of the BSI rose by 0.6 per cent in February, the eighth gain in 10 months.
• The Commonwealth Bank BSI is obtained by tracking the value of credit and debit card transactions processed through the Commonwealth Bank merchant facilities. And in line with the practice of the Bureau of Statistics with retail trade data, seasonally adjusted and trend estimates of the BSI are obtained by applying statistical software. The seasonally adjusted and trend BSI results permit analysis of the broader underlying trends that may be hidden in the raw data.
• Across sectors, 13 of the 19 industry sectors rose in trend terms in February. Amongst the biggest gains in sales were Retail Stores (up 2.5 per cent); Transportation (up 2.0 per cent); and Airlines (up 1.7 per cent).
• Sales fell most in Mail Order/Telephone Order Providers (down 1.2 per cent); Automobiles & Vehicles and Business Services (both down by 0.3 per cent); and Government Services (down by 0.2 per cent).
• Airlines posted the strongest gain in sales in 19 months in February. In contrast, Government Services sales have now fallen for eight straight months.
• In annual terms in February, all but four of the 19 industry sectors recorded gains. Spending fell by 3.8 per cent over the past year in Government Services with Automobile/Vehicle Rentals down 2.3 per cent; Clothing down 1.4 per cent; and Automobiles & Vehicles down 1.1 per cent.
• At the other end of the scale, sectors with strongest annual growth in February included Retail Stores, Transportation, Airlines and Hotels & Motels.
• Sales were stronger across all states and territories in February except Northern Territory (down 0.3 per cent). The strongest growth occurred in Western Australia (up 1.0 per cent) followed by NSW (up 0.7 per cent); Tasmania (up 0.5 per cent); ACT and South Australia (both up 0.4 per cent); Victoria (up 0.3 per cent) and Queensland (up 0.1 per cent).
• In annual terms all states and territories had sales above a year ago except Northern Territory (down 4.2 per cent). The strongest growth was in Western Australia (up 8.1 per cent) from Tasmania (up 6.6 per cent). Slowest growth was in South Australia (up 3.2 per cent).

What is the importance of the report?

• The Commonwealth Bank releases its Business Sales Index (BSI) around the 20th each month. The data provides a broader perspective of consumer spending. The BSI includes transactions made at traditional retail establishments such as supermarkets, clothing stores and cafes & restaurants. But it is more comparable to the ABS Household Final Consumption Expenditure released on a quarterly basis. The Business Sales Indicator also covers businesses such as airlines, car dealers and utilities such as water and electricity companies as well as motels, business, professional and government services and wholesalers.

What are the implications for interest rates and investors?

• As long as jobs are created and job security remains strong then Aussie consumers will spend. And the extra dollars should flow through to business and support business-to-business spending as well as employment. The job market is crucial to the outlook for interest rates.
• CommSec continues to expect stable interest rate settings for the foreseeable future.

Craig James, Chief Economist

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•  Inflation: The Consumer Price Index – the main measure of inflation in Australia – rose by 0.5 per cent in the December quarter, above expectations. In seasonally adjusted terms the CPI rose by 0.4 per cent. The annual rate of headline inflation eased from 1.9 per cent to 1.8 per cent. The Aussie dollar rose a quarter of a cent against the greenback in response.
• Underlying measures: The Reserve Bank monitors three measures to derive the underlying inflation rate. The trimmed mean rose by 0.4 per cent in the December quarter (1.8 per cent annual); the weighted median rose by 0.4 per cent (1.7 per cent annual) and the CPI less volatile items rose by 0.6 per cent (1.6 per cent annual). Overall, underlying inflation rose by 0.4 per cent in the quarter and by 1.75 per cent over the year. Market goods and services less volatile items was up by 0.7 per cent in the quarter to be up 1.7 per cent on the year.
• Main changes: domestic holiday travel and accommodation (+6.2 per cent), fruit (+5.0 per cent), tobacco (+9.4 per cent) and new dwelling purchase by owner-occupiers (+0.4 per cent) The most significant offsetting price falls this quarter are automotive fuel (-2.5 per cent), audio visual and computing equipment (-3.3 per cent), wine (-1.9 per cent) and telecommunications equipment and services (-1.5 per cent).

What does it all mean?

• Consumer prices rose a touch higher than expected in the December quarter. And while growth rates of 0.4-0.5 per cent for the quarter are still modest outcomes, market goods and services printed at a relatively high growth rate of 0.7 per cent for the quarter. There are no immediate implications other than interest rates remain on hold. But the Reserve Bank will likely stick to its guns, saying the next move in rates is up as a tighter job market manifests in higher wages and prices over time.
• Over the past decade underlying inflation has averaged 2.4 per cent and inflation has averaged 2 per cent over the past five years. The goal of the Reserve Bank is to keep inflation in the 2-3 per cent target band over the medium term. So the Reserve Bank has met its objective. Today’s data confirms that inflation is contained for now, so interest rates don’t need to move in any direction. For future interest rate settings it depends on where inflation is headed. And the best guess is that underlying inflation will move modestly higher. The job market is tightening, wages are starting to tick higher and the weaker Aussie dollar has the potential to show up in the prices of imported goods.
• Before today the Reserve Bank had expected underlying inflation to be 1.75 per cent in the December quarter and then to hold between 2-2.25 per cent from March 2019 through to the end of the 2020 year. The Bank will revisit these forecasts in the next quarterly Statement on Monetary Policy on February 8. Certainly we aren’t expecting any major changes in forecasts.
• With inflation still low and expected to lift only modestly over time, the Reserve Bank can continue to “push the envelope” by leaving interest rates well below the “neutral” or “normal” level. Monetary conditions – including interest rates and the Aussie dollar – remain stimulatory, and there are few risks in maintaining current settings.
• Wages are growing at a 2.3 per cent annual rate (2.7 per cent including bonuses) so the real winners in the current environment are Aussie consumers. A raft of goods has become more affordable with wages outpacing prices.

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• Record home building: In real trend terms, a record $19.8 billion of work was done in building new homes in the September quarter.
• New starts: The number of dwelling starts fell by 5.7 per cent in the September quarter after falling 4.7 per cent in the June quarter and rising 11.7 per cent in the March quarter. Currently, 227,186 homes are being built.
• Near-record building: In the September quarter $75.1 billion of residential and commercial building work was yet to be done (completed), down from the record high of $76.4 billion in the June quarter.
• Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment index fell by 4.7 per cent to a 16-month low of 99.6 in January. A reading above 100 denotes optimism.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. Building & building material companies are affected by dwelling starts including Boral, James Hardie, Adelaide Brighton, Brickworks, AV Jennings Limited, Devine Limited and Beacon Lighting.

What does it all mean?

• Think that the building boom is over? A record amount of work was done in building new homes in the September quarter. And the value of outstanding home building and commercial work stands at $74 billion with the value of projects to be completed just off record high. Notably that total includes almost 230,000 homes that are currently in various stages of construction.
• In short, there is plenty of building work to be done. Add to the value of home and commercial building, around $62 billion of engineering construction work is to be done, up 26.2 per cent on a year ago.
• The stock of homes being built will understandably ease over the next year as supply starts to match underlying demand. But Australia’s growing population needs more roads, schools and hospitals, so the bevy of infrastructure projects mean strong demand for labour and resources.
• As supply of homes matches demand, both upward and downward pressures of home prices will ease. Home prices will flatten out across many regions.
• The latest weekly survey shows above-average consumer sentiment while the monthly survey shows a more pessimistic reading. The monthly data has been superseded by a more optimistic reading in the weekly series. Bottom line is that consumer confidence is good, not great.

What do the figures show?

Dwelling starts & work done

• The number of dwelling starts (commencements) fell by 5.7 per cent in the September quarter after falling 4.7 per cent in the June quarter and rising 11.7 per cent in the March quarter.
• House starts fell by 4.5 per cent in the quarter while apartment starts fell by 7.3 per cent.
• Work started on 228,179 new dwellings over the 12 months to September, up 3.8 per cent on the year but down from the record high of 234,179 dwellings in the year to December 2016.
• Across Australia, starts in the September quarter fell in five states/territories: NSW (down by 5.5 per cent); Victoria (down by 16.0 per cent); Queensland (up by 8.3 per cent); South Australia (down by 18.6 per cent); Western Australia (up by 2.9 per cent); Tasmania (down by 6.0 per cent); Northern Territory (down by 2.9 per cent); and the ACT (up by 41.5 per cent).
• In the full 12-months to September, dwelling starts were higher than the decade average in all of the states & territories except for the Northern Territory (down 51.1 per cent), and Western Australia (down 23.3 per cent). Starts in NSW were 49.8 per cent above the decade average. Next highest was the ACT where starts were up by 32.3 above the decade average with Victoria up 27.9 per cent; Queensland up 16.7 per cent; Tasmania up 12.1 per cent; and South Australia up 7.9 per cent.
• In the September quarter $75.1 billion of residential and commercial building work was yet to be done (completed), up 9.7 per cent on a year ago.
• The value of residential and commercial building work in the pipeline stood at $96.6 billion at the end of September, up 7.8 per cent on a year ago but down from a record $99 billion at the end of June.
• Across Australia, 227,186 homes are being built, down from a record 230,573 homes in March.

Consumer confidence

• The Westpac/Melbourne Institute survey of consumer sentiment index fell by 4.7 per cent to 99.6 in January. The sentiment index is now below its long-term average of 101.3. A reading above 100 denotes optimism. The survey of 1,200 people was conducted from January 7-11.
• The current conditions index fell by 3.3 per cent and the expectations index fell by 5.6 per cent.
• All of the five of the components of the index fell in January:
  • The estimate of family finances compared with a year ago fell by 5.9 per cent;
  • The estimate of family finances over the next year fell by 3.1 per cent;
  • Economic conditions over the next 12 months fell by 7.8 per cent;
  • Economic conditions over the next 5 years fell by 5.9 per cent;
  • The measure on whether it was a good time to buy a major household item fell by 1.3 per cent.
• Housing outlook: A good time to buy a dwelling? The index rose by 4.1 per cent to be up 7.7 per cent on the year. House price expectations fell by 4.1 per cent to be down by 25.7 per cent on a year ago.
• Unemployment expectations: Unemployment expectations rose by 2.2 per cent in January to be up 0.7 per cent over the year.

What is the importance of the economic data?

What are the implications for interest rates and investors?

• Council approvals to build new homes, offices and shops
  have eased from record levels, but it is clear that there is plenty of work to be done over the next year or two. And added to the near record amount of building there are the growing number of infrastructure projects. There is a growing risk of price and wage pressures to emerge in the construction sector.
• Prospects currently remain bright for building material companies. But forward-looking investors would envisage slowing demand for materials in a year’s time – in home building rather than commercial or engineering sectors.
• CommSec doesn’t expect a change in interest rates until later in 2019 at the earliest.

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• Inflation: The Consumer Price Index – the main measure of inflation in Australia – rose by 0.4 per cent in the September quarter, broadly in line with expectations. In seasonally adjusted terms the CPI rose by 0.1 per cent. The annual rate of headline inflation eased from 2.1 per cent to 1.9 per cent.
• Underlying measures: The Reserve Bank monitors three measures to derive the underlying inflation rate. The trimmed mean rose by 0.4 per cent in the September quarter (1.8 per cent annual); the weighted median rose by 0.3 per cent (1.7 per cent annual) and the CPI less volatile items rose by 0.4 per cent (1.2 per cent annual). Overall, underlying inflation rose by 0.4 per cent in the quarter and by 1.6 per cent over the year. Market goods and services less volatile items was up by 0.5 per cent in the quarter to be up 1.1 per cent on the year.
• Main changes: International holiday travel and accommodation (+4.3 per cent), domestic holiday travel and accommodation (+2.4 per cent), tobacco (+1.8 per cent), and automotive fuel (+1.4 per cent). The most significant offsetting price falls this quarter are child care (-11.8 per cent), and telecommunications equipment and services (-1.5 per cent).

What does it all mean?

• The Reserve Bank Governor recently remarked on our good economic fortunes. And quite rightly. When was the last time that inflation was near 2 per cent with economic growth above 3 per cent, unemployment near 5 per cent and all this with interest rates at 1.5 per cent? So it is quite timely that this week’s The Economist magazine cover states “What Australia can teach the world”.
• The Reserve Bank won’t be touching interest rates any time soon. The Board’s preferred underlying inflation rate remains low and it is still struggling to get anywhere near the mid-point of the Board’s 2-3 per cent target. Reserve Bank Governor Philip Lowe says he would like to see inflation at a 2.5 per cent annual rate with wage growth at 3.5 per cent, but it may take a little more time to achieve this.
• The Reserve Bank expects underlying inflation of 1.75 per cent in the December quarter and then to hold between 2-2.25 per cent from March 2019 through to the end of the 2020 year. The Bank will revisit these forecasts in the next quarterly Statement on Monetary Policy on November 9. Certainly we aren’t expecting any major changes in forecasts.
• The bottom line is that the Reserve Bank can continue to “push the envelope” by leaving interest rates low despite economic growth exceeding the 2.75 per cent “speed limit”.
• The business sector has effectively been given a rate cut via the lower Australian dollar. And consumers have been given a de facto rate hike via higher petrol prices. Note however that global oil prices are now in retreat, so we need to watch this carefully.
• Three of the 11 CPI categories recorded deflation in the September quarter and three recorded deflation over the year. Wage growth is ahead of inflation and consumers are key winners from the strong retail competition occurring across the globe.

Craig James, Chief Economist 

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