GDP explodes

Well, how about that! National Accounts for the March quarter are out and BOOM! A quarter on quarter increase of 1.3%. An annual increase of 4.3%.

Now, the annual increase does overstate things to an extent, given it contains the rebound quarter from last year’s floods. But even so, if you cut a half point off, this remains impressive. In a world of fading growth, very much so.

The growth was concentrated in household consumption, up 0.9% versus 0.3% in December. It was the largest jump since December 2007. Private investment was 0.8% versus -0.2 in December. These managed to offset a 0.5% decline in next exports.

The dollar bounced .50 cents on the announcement and stocks got a 15 point fillip. These are relatively muted responses given the blowout quarter. My guess is that markets have digested this as an unsustainable figure, based upon pent up demand across the happier times of the first quarter.

Nonetheless, time to go long bullhawk rhetoric!

More to come…

Update: Dollar up 70 cents now so some exuberance creeping in and perhaps pushing out of rate cuts…

Houses and Holes
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    • Rubbish. There are plenty of indicators to suggest the household component has already faded. Where do you think the first quarter surge came from? Rate cuts is my guess. There’s no inflation and we need to keep households moving along. They did the right thing for sure.

      • They’ve gone to hard. Have they waited long enough since the nov and dec cuts, let alone mays cut? 75pb in the last 5 weeks is excessive.
        I see your point re: inflation with the last print below 2% however I am not arguing they should be actively fighting inflation only that they have cut this month when it was not warranted. I think the current dis-leveraging has been successful and there’s no need to stray from this path.
        Despite headlines to the contrary the labor market up until now is strong, retail hasn’t been a write off, terms of trade are still strong. It almost seems that the RBA has jumped at shadows or unduly influenced by the financial markets.
        I am no bullhawk but neither am I a beardove.
        Global situations may well warrant cuts but not at this stage of the game.

        • outsidetrader


          Yes, GDP looks backwards and monetary policy looks forward – but the 50 basis points last months really alleviated the need to move again this month.

          While there are a bunch of statisical releases showing doom and gloom, there are a number which also appear to show lollipops and sunshine.

          Are we at a turning point? Perhaps, but perhaps not. We won’t properly know where we are now for another six months, which is half the reason why it is so hard for central banks to consistently get their decisions right.

          But I would have prefered they wait another month and watch Europe, US and Australian indicators before cutting further if warranted next month.

    • Um, most have seem to have forgotten this was for the first quarter.

      i.e Jan to Mar – and we’re now in near middle of June.

      The less delayed indicators showed a downturn in April.

      Using GDP to gauge economic strength is not productive, and it was never meant to be.

      But its time for the bullhawks to have their day in the sun.

      • It may be slightly irksome that retrospective economic data can puff the chests of intellectual adversaries, but of more importance is the impact that this news has thus far had on our exchange rate, which, at least in theory, ought to be pricing in future, rather than bygone, economic conditions. Not what we need at all.

      • Yes, the Lucky Country. Helped by our strong resource sector – mining did it’s bit (0.7) but other sectors also surprisingly strong (financial services). I see Chris Joye today reporting AFG in May writing $3billion in loans, most in three years. This economy is a conundrum!

        • Ha. Given that house prices have been falling I would welcome more AFG numbers like this one.

        • We’ve stopped reporting the AFG numbers because they have become unreliable owing to the market share shifts between banks and brokers.

          Still, one of the lessons of today’s GDP is that monetary policy still has a kick in this country so I’ll be easing back on a conclusion I’d been tempted to draw, that we are already in a liquidity trap.

      • You make your own luck. You capitalise on your own opportunities. Our ecconomy is different to that of the US and the Euro Zone… comeon!

  1. Like the average weekly earnings data, this quarter-on-quarter GDP growth figure seems to bear little resembalence to most other indicators that were running concurrently.

    It shows a boom in household consumption at a time when retail and the housing market were lacklustre (and have become even more so since).

    It didn’t convince the RBA to hold fire yesterday, even though they would certainly have had prior knowledge of this figure. Not sure that they believed the strength of this was real and it doesn’t really ring true to me either.

    Like I said in regards to the AWOTE data, one positive figure – important as it may be – does not simply consign all other related weak data coming before it to irrelivence.

    “RBA has panicked. They should have held fire.”

    We’ve had .75bp on rate cuts delivered AFTER the March quarter, so it wouldn’t have been a factor in this.

    • I really don’t think there is any need to question the data. The quarter makes sense enough if one considers consumption was boosted by rate cuts but ongoing deflationary forces in parts of the labour market, in sectors with overcapacity and in the tradeables weighed on prices.

      The gulf between nominal and real GDP is a gap that can explain the perceived difference between economic weakness and strong GDP.

    • An insane state of affairs when the RBA an’t trust the offical stats. But its the only reasonable conclusion.

      The 2 speed economy is about to become one and a half speed

  2. If the biggest driver of this GDP number is household consumption and the ABS counts everything from food, rent and energy costs in that measure, doesn’t this potentially mean that increases in petrol, electricity and rent might have boosted this figure?

    Where else have households increased spending? Is there a corresponding rise in either retail or car sales? You’d have to look at the breakdown!

  3. reusachtigeMEMBER

    Low unemployment. Strong growth. Inflation strong. Sorry HnH but your incessant calls for interest rate cuts seems like support for the housing ponzi and rent seekers in general. Not looking good.

    • If want to make stuff up, like “inflation strong” then there isn’t much point in responding is there? Where do you think the burst of household spending came from? Rate cuts. That’s the point of them.

      • The rate 2 cuts last year may have had some impact sentiment, however their material effect should take at least 6 – 12mths to filter through the economy.

        Likewise with the 2 recent cuts we’ve had. Their effect should start being felt in Q4 figures… Then watch the jaws hit the floor.

        • But can you explain why the sector that delivered nearly all of the growth reported weak conditons over most of that quarter?

          Inflation didn’t budge on the upside then or now – why not?

          I think many will be forced to sooner or later come to the conclusion that these figures are not a particularly accurate representation of what occurred on the ground.

          This quarterly result is more typical of the pre-GFC debt binge boom times – but private sector credit has certainly not boomed in the March quarter.

          Curiouser and curiouser – but something sure ain’t right.

        • Leftee, look to the GDP deflator. Nominal growth was 0.3. Deflation of 1% added 1% to real GDP. That helps explain the discrepancy between a good number and the reality on the ground.

    • Support for housing ponzi and renters could also be described as maintaining stability in the housing market. They’re just doing what they can. And March inflation was down significantly.

  4. 1.3% over the quarter is pretty bloody strong growth!

    And it was mostly delivered by a sector that was complaining about struggling at the time.

    What were households consuming in such strong volumes and where from?

    It just doesn’t come across as a realistic picture. But it’s definately bullhawk porn!

  5. The GDP numbers sounds like a bear bull hawk trap. I would hand them as much rope so they can hang themselves.

    Even BHP is not confident the boom will continue for much longer. When the boom ends, we will hit a brick wall.

    • At last. You now appreciate the importance of the boom. Knew you’d get there eventually!

      • I appreciate if you could come out of your resources bubble and read what is written in plain English.

        We will hit a brick wall when the mining boom ends; with manufacturing decimated and FIRE sector pumped up again.

        • Mav you should write a c&w song called “When the boom ends”. You could have HnH & UE play duelling fiddles!!

          I’ll help you out with the first few lines….

          “When the boom ends I’ll be right in my head, but”,
          “When the boom ends I’ll probably be dead”

          Everybody now.

          • Will you, MineBot and Gina play the fiddle? Then I am game. LOL

            (BHP has declined my request to play the fiddle)

          • The MineBot script has 3 possible fuzzy logic branches:

            1. Double down in praise of the robber barons
            2. String of abuse
            3. Make light of a serious debate.

          • Edit Button Please!

            Jagster: You’re booked. [I was overexcited at the prospect of two new and interesting voices at MB, Jagster and Macrobears]

            Mav. Robber Barons? – archaic.

        • Jumping jack flash

          Cue my acres upon acres of enormous factories that employ the displaced workers at globally competitive rates, and produce and sell useful things that people actually buy, both to Australians and to the world.

          We need self sufficiency, not some water-wheel service economy with a broken pump (China).

  6. You gotta love the bears at this blog. Funny how GDP growth numbers are useless when strong, but if it came in weak you can betchya it would’ve been an accurate indicator of all the weakness out there. Oh and of course its a backward looking indicator so its not worth anything anyway! The same argument gets trotted out after every national accounts release.

    You guys are so lame its not funny

    • It’s a bit like that with the data from China. If it’s good, some bears cite unreliability and inaccuracy of numbers, if bad, same bears welcome acceptance…

      • Exactly right – its an embarassment.

        I’m waiting for the argument that the authorities have fudged the numbers and its all a lie!

        The other thing is you can predict recession and bad news for only so long before you’re right…if you’ve predicted it for 3 straight years and then in 2 years time it finally comes true, do you call that good analysis? I think not.

        • But what’s your opinion bears – why is the result so divergent from much of what was occurring on the ground during that time frame?

        • “[I]f you’ve predicted it for 3 straight years and then in 2 years time it finally comes true, do you call that good analysis?”

          Yes, if you’ve been saying consistently that the First Home Owners’ Boost merely kicked the can down the road.

          • Its a pretty poor assumption to predict no govt intervention in an asset that is the mainstay of most people’s wealth and asset base. Looking forward to the next can kick justification whenever that is. “Oh the RBA shouldnt have cut rates otherwise a crash was definitely on the way!!”

            Just because you’d prefer economic devastation to the majority of the people in this country, doesn’t mean it is a noble pursuit on your behalf.

          • My alleged preference for economic devastation can be judged by my attacks on reverse tariffs. (There’s another attack coming up…)

            Am I a protectionist, then? No. Protectionism is the fallacy that you get richer by weighing down your competitive industries in order to prop up your uncompetitive ones, causing a diversion of investment from industries in which you have an advantage to industries in which you don’t. My position is that you get richer by producing more than you consume. Chalk and cheese.

    • The fact is MB, it bears little resembalence to much of what was occurring on the gound at the time.

      Then again, I do hear that deep spending cuts are being made at the ABS so maybe we have too small a number of people trying to handle the huge job of compiling national accounts with nothing more than caffeine injections and punishingly long shifts.

      • Personally I’d like an explanation as to why our expenditure on food is surging. I’m not doubting the ABS number. I remember a headline not that long ago that Dominoes Pizza had a large number of positions to fill. I think the ABS may be right, but why? Why have we suddenly gotten so much hungrier?

        • Jumping jack flash

          It’s not so much being hungrier, its just that your dollar buys half as much, so you need to spend twice as many dollars for the same thing.

          This is good for the GDP!

          Inflation in the things you actually buy, deflation in the things you don’t.

          Then using aggregates for reporting will effectively hide the finer details.

          A marvellous system.

    • StanGoodvibes

      MacroBears I have to agree. You Aussies are a funny lot. ANY gpd growth in the current western economic world is good, 1.3% in a quarter is nothing short of outstanding and everyone should be breaking out the champers (Gazebo in Elizabeth Bay do $99 Magnums of Moet at 4pm Sat and Sun).

      Instead you just about top worldwide surveys on general glumness and pessimism about the state of the things and worrying about the future.


      One question: If .9% of that was household consumption, but no-ones buying houses or spending it in normal retail… what the hell were they spending it on?

      • That’s the blindingly obvious question we should all be asking Stan. If the sector that was supposed to have driven all the growth had grown strongly during the March quarter, I would have no reason to question this result.

      • Lowest confidence in the western world I’d imagine

        Household spending is being directed to services rather than retail at present…plus some deflation in retail goods is increasing purchasing power overall thus the strong spending elsewhere.

        Retail may well be in recession but that doesn’t mean consumer spending is…thats what the bears fail to realise

        • > Lowest confidence in the western world I’d imagine

          There’s a contradiction. The economy is going gangbusters and we have the lowest confidence in the world. They can’t both be true.

          • Yes they can both be true. Human emotions dont need to be justified by anything…people read the spin in the paper and get scared.

        • That must be why the markets are pricing in 2.25% within 12 months.

          I mean, how do you reconcile an economy supposedly at 4.3% p.a. with two successive rate cuts? Someone has got it seriously wrong here. Chris Joye thinks its the RBA (see below) but a walk down the main street tells me its Chris Joye.

          • I think its just you.

            Just because markets are pricing it doesnt mean its correct…so interest rate markets are now the holy grail? Money is flooding into bond markets and I don’t think they are predicting anything…they are just happy with yield and safety and dont cfare about the consequences in the interim.

            Negative bond yields in Switzerland…I’m guessing you think thats justified as well?

        • StanGoodvibes

          As I have repeatedly stated on here to no avail… now that households are not bumping retail 9% by converting home equity to cash, and are instead *decreasing* retail spending by about 9% due to increased saving *and* are also shopping online, we are not seeing a recession in retail we are seeing a CONTRACTION.

          Basically we need about 25-30% less shops than we needed last (credit-fueled)decade.

          I am constantly surprised when I hear the media describing a return to sustainable sensible spending (and saving) after a decade of wildly irresponsible debt growth as ‘recession’.

  7. “Gross domestic product: Index – Percentage changes” (seasonally adjusted) was -1.2% for each of the last two quarters. “Terms of trade: Index – Percentage changes” (seasonally adjusted) was -5.8% and -4.3%, respectively. I am therefore curious as to whether the decline in the terms of trade became a positive when amounts of money were converted into volumes.

    I got similarly curious three years ago, concerning Q1 of 2009.

  8. Nonetheless, time to go long bullhawk rhetoric!


    Chris Joye is out first with a good dose of I-told-you-so:

    Perhaps most significantly, today’s economic growth data, combined with the labour market data over the last 12 months, proves once and for all that the RBA’s monetary policy settings over 2010 and prior to November 2011 were spot-on.

    Indeed, it suggests that the RBA’s rate cuts since November 2011 may prove to be one of the central bank’s worst policy-making mistakes.

    • Grrr. Can someone please close the tag?

      Do we get an edit button with the server upgrade?

  9. Surely this confirms that the RBA is solely targeting the housing market, subject to a conducive inflation print?

    4.9% unemployment, 4.3% GDP growth and we’re slashing interest rates. (First and only ’emergency’ cut outside a crisis). It doesn’t make a whole lot of sense.

    • Speak to any real estate agent and they will tell you the established market is going well and prices are relatively steady in the 400-700k bracket. Price falls are being concentrated in the higher end, which to be honest I have no idea why people are concerned about that. Its why the banks havent had to materially increase their provisions, as those with a high-end luxury house generally have a lot of cash anyway and are not highly leveraged. There will be exceptions of course but that is the broad view

      However construction is very very weak. Any builder will tell you that. Rate cuts and less supply will equal a base in house prices fairly soon you’d think.

      4.9% UE and 4.3% GDP growth with a central bank slashing rates….probably the only time in your life this will happen

      • Speak to any real estate agent and they will tell you the established market is going well and prices are relatively steady in the 400-700k bracket

        That’s definitely not what I’m hearing. May depend on the area I suppose…

        • The established market is turning over from a volumes perspective, not saying prices are buoyant. Steady in the lower price ranges and definitely falling in the higher ranges. The funny thing is im hearing the established market is going better in NSW than WA….

      • reusachtigeMEMBER

        Well there you go. There’s not even a need to prop up the ponzi. It’s also going fine. So let’s all still cry for the rent seekers. “They need them more money less rates ok!!!”

      • Price falls are being concentrated in the higher end, which to be honest I have no idea why people are concerned about that

        Perhaps you’ve misdiagnosed their concern.

        I’m more concerned that housing prices in the sub $600k haven’t declined to where they should be.

        Why aare we still punishing the young and other FHB’s?

        • Given people can afford to buy at those prices, why should they come down to a price that you would prefer?

          Basically you want every young FHB to be able to afford a 4X2 on a 700sqm block in an inner city suburb?

          • Given people can afford to buy at those prices, why should they come down to a price that you would prefer?

            Uhhh, we are in a global financial crisis in no small part because people bought what they can’t afford.

            They may be enabled by irresponible bank lending, but enablement is not affordability.

            Basically you want every young FHB to be able to afford a 4X2 on a 700sqm block in an inner city suburb?

            So here we go again, an appeal to… well I don’t know what this is an appeal to, but if I were to guess I’m sure I’d be moderated due to the language that is most suited to such a conclusion.

            A strawman argument to say the very least. Current prices are harmful to the economy, in terms of productivity, in terms of incentives, in terms of dynamics.

            People may be deluded to thinking that lower interest rates means they can afford more, the dunamics of debt and wealth can more than demonstrate it is a falsehood.

            For those of a more stable mind, their only option to not partake in previous lunacy is to not buy, is to exert downwards pressure on prices by not consuming, and that is quite difficult with such an inealstic good.

            Their only hope has been for the market to correct itself, and now it is a just outcome that the market is offered to more distortions so it doesn’t correct.

            So please, take your ridulous 4×2 700sqm inner city blocvks to a troll nest where it belongs.

    • Current house prices depend on expectations of capital gains. So, if the RBA is trying to engineer a gradual return of house prices to levels commensurate with rents and incomes, the agenda must be denied in order to succeed. If such an agenda were known and credible, it would cause an immediate collapse in prices.

  10. Alex Heyworth

    Scott Sumner says the Fed should learn from the RBA

    Scott comments

    “Forget about the implied 5.5% NGDP growth forecast. Australia has a 2-3% inflation target and faster trend RGDP growth than the US. That sort of nominal growth would be beyond my wildest dreams for the US. Rather think about how proactive they are. Unemployment is low and inflation is in the sweet spot. But they are easing monetary policy because they see the global slowdown, which for some reason the much more sophisticated Fed and ECB don’t quite comprehend. They aren’t cutting rates because 5.5% NGDP growth is too low, they are cutting rates to make sure that 5.5% NGDP growth happens.”

    • Alex thanks for the link.

      I wonder if Ben, the shareholders of the FED, industrial complex, or Congress would be interested? The system they have serves the 1% very well, and that is where their alliance lies from what I can see.

      • Alex Heyworth

        Dunno, the US system ensures that the wheels of change move very slowly, but I sense change is in the wind. Time will tell.

  11. Pretty amazing, and in light of falling commodity prices. The mining and financial sector to the rescue. Just goes to show how exposed we are though, but also very lucky to have lots of projects coming on line, and at some point when LNG takes off the accounts are going to look pretty good…at least for a time. More reason for the government to use the spoils to prepare for the bad times.

  12. Mr SquiggleMEMBER

    Just yesterday we were told the current account subtracted 0.5% from March GDP.

    So the domestic economy was running at about 1.8% in March qtr.

    That’s safely inside boom-level territory.

    Expansionary short term rates (RBA’s words) look pro-cyclical at the moment.

  13. Mr SquiggleMEMBER

    Actually, i’ve spotted it. Its all Western Australia.

    GSP for WA for the qtr was 7.8% (seasonally adjusted).

    For the 12 months, GSP 14.5% (Seasonally adjusted)- that’s just frightening.

  14. If lower interest rates were an answer, USA would be going great.

    Also, what about savers? If we get a better return on our money we spend more too.

    Our inflation rate ensures that in 35 years half the old nest egg has evaporated and dependence on pensions provided by taxpayers is the reality.

    Young people now are being asked to go into way too much debt and at a time of high unemployment. 3% is where it should be at. Maybe even I could get a job. Start adding in those who have wangled the more lucrative disability pension for a dose of reality.

    GDP is one measure of something I guess and hotly debated but what about nett taxation revenues as an indicator? If we aren’t producing it and earning dollars, taxes will go down.

  15. Great news. Seriously nice to read something positive, even if one is not convinced on the duration of the sugar high.
    I doubt many bears are pleased about bad news. Even if there is an occasional moment of feeling slightly vindicated it’s really lame when in reality the bearish outcomes confirm the end of good times for many if not most. Like I’ve said before and many others acknowledge as well, the worst case scenarios mean that we will all be losing money and quality of life in one way or other; most likely in the form of reduced income due to either wage decrease/freeze or increased taxes) and we’d most likely know friends and relatives in serious strife. It is definitely nothing to wish for.

    The reason I read the gloomy forecasts is that I don’t think it helps to bury the head in the sand, spending and piling on debt, while reading rosy forecasts based on hopes. Markets don’t go to the direction we hope, countries don’t determine their fates based on our hopes, and governments certainly shouldn’t plan the economy based on such hopes and best case scenarios. Thanks to internet we can at least seek information, weigh the risks and use our brain.

    If only the permabulls would have considered the possibility of negative events over the past decade. Had they done that, and had there been less of a credit boom, even the most gloomy of us could feel much more cheerful.

    Anyway, great news today. Shall the next quarter be all sunshine and lollipops as well!

  16. It’s depressing reading comments that accept the implicit implication that an econnomy can be steered by whatever the RBA is doing.
    It is as if nothing has been learned.