GDP: Here comes the income shock

By Leith van Onselen

The Australian Bureau of Statistics (ABS) today released the national accounts for the September quarter, which registered a 0.5% increase in real GDP over the quarter and a 3.1% rise over the year. The market had expected GDP to increase by 0.6% over the quarter. On a per capita basis, real GDP was flat, meaning that it just managed to keep up with population growth over the quarter.

The below ABS table shows the breakdown by the main components compared to the previous quarter:

In seasonally adjusted terms, the main contributors to GDP were Total changes in inventories (0.3%), and Household final consumption expenditure (0.2%).

By industry component, the main contributors to GDP were Mining (up 4.5%), Manufacturing (up 2.1%) and Health care & social assistance (up 1.8%). Mining contributed 0.4% to the increase in GDP, whereas Manufacturing and Health care & social assistance both contributed 0.1% to the increase in GDP:

Western Australia drove the increase in GDP, with state final demand rising by 2.3% over the quarter. New South Wales (+0.1%) and the ACT (+0.6%) also managed moderate growth. By contrast, state final demand fell in Victoria (-0.2%), Queensland (-1.6%), South Australia (-3.2%), Tasmania (-1.5%) and the Northern Territory (-2.9%). Victoria and Tasmania are now officially in recession, with both states experiencing at least two consecutive quarters of negative growth.

The terms-of-trade declined for the fourth consecutive quarter, down -4.0% over the quarter on lower commodity prices:

The decline in the terms-of-trade is dragging on income growth, with real per capital national disposable income (NDI) falling by -1.2% over the quarter and by -1.8% over the year. Going forward, income growth will continue to be weak as long as the terms-of-trade continues to unwind (see below charts).

Arguably, the best story to come out of this release is that productivity continued to grow, with real GDP per hour worked increasing 0.8% over the quarter and by 3.3% over the year. The structural adjustment under way looks like it is creating greater efficiencies in the weaker sectors:

Finally, the household savings ratio fell slightly over the quarter to 10.6% from 10.9%, and remains well above the levels of the 2000s housing/credit boom, but below the recent peak level of 12.1% reached in June 2009 in the wake of the financial crisis:

Overall, this is a weak result. Growth of real GDP per capita was flat, growth in the non-mining economy is clearly weakening, and disposable incomes are on the slide. The RBA was clearly justified in reducing interest rates yesterday. And you can expect more rate cuts as the mining boom unwinds.

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.


Unconventional Economist


    • per Capita is rarely important because that tells you more about how thigns are going for individuals. Meanwhile, big businesses benefit from Total GDP growth even if per capita it goes down.

  1. Is growth in inventories a good thing? Does it mean that businesses think there will be a good amount of sales and are stocking up to deal with that?

  2. Hopefully China’s restated commitment to urbanisation, the acceleration of development of underdeveloped economic regions and modest domestic stimulus will underpin the resources sector – moderating ToT impact.

    Why even Lorax would want that.

    • China is already 51% urbanised (according to wikipedia). No one seems to understand exponential growth. Consider:

      They need on the outside estimate 50 000 skyscrapers. @15k tonnes of steel per building this is 750mt of steel: ~1yrs worth.

      To build 170 New York city transit systems will take 367km*2500t/km*170 New yorks. @700mt of steel produced a year that is 4 years of production.

      To build every road in America out to a 4 lane freeway is 1 year of production.

      1 billion cars is 1 yr of production, say the next year is for trucks and the year after that for trains and boats.

      In 9 years assuming no growth in steel production you have 170 new york city subways with 50 000 300m tall towers, a billion cars on a road system as long as the current road system in the US but built to a 4 lane freeway. As well as a 1.4 billion tonnes of boats and machines.

      You can do it twice before the 2 decade time limit is up. And that is with no increase in steel production or recycling or efficiency gains or existing trains/cars/boats and buildings.

  3. Woot Victoria officially in recession now 🙁
    I wonder what entirely original and 10,000% guaranteed to succeed residential-housing-related stimulus is being cooking up now to fix it…

  4. “On a per capita basis, real GDP was flat, meaning that it just managed to keep up with population growth over the quarter.”

    Who reckons there will be a call for increased immigration to prevent a recession, we are back to 3% interest rates, how about 300,000 population increase ?

    • How will immigration help to prevent a recession when jobs will be scarce? What are the newly minted migrants supposed to do?

      • Buy a house, and buy consumer good and services while looking for scarce jobs that discriminate against them because of their language / ethnicity.

        In the short term it would cause house price falls to be slowed, transaction volumes to be up, and the additional small boost to over-all consumption will create employment and give the impression of ‘real’ growth.

        Things don’t get start to be a problem until the migrants are officially counted in UE (it would take at least 2 months for them to show up in the ABS measure). Over the very long term, it obviously leads to overpopulation of areas, competition for housing, strain on public transport and other public services etc.

        Soooo… based on the fatally flawed short-term focus of policy makers, it sounds like a great plan.

        • How – in the name of Beelzebub bollocks – is anyone who comes from overseas going to immediately:

          a). qualify for a loan


          b). break their entire piggy-bank on a dog-box

          when you land – first thing you do – you keep mobile! You rent! You sort yourself out first, you don’t tie a stone-mill around your neck and then jump in the first lake you see.

          Oh, and whilst I’m at it – what kind of migrants are we all talking about? What kind of incomes? Are they all uber-qualified super-beings from outer-space? Are they bringing Mars Dollars with them? Or, is there a new visa set of points whereby you are asked if you are able to sustain the ongoing local Ponzi Scam?



          PS: Unless you were playing devil’s advocate!

          • There’s alot of chased up Chinese ready to roll. WTF they’ll actually do here or even contribute is irrelevant.

        • Increased demand for rentals as people are crammed 8 to a 2 bedroom unit, rent assistance paid, these people consume services that will have to grow, they will need to see government sponsored mental health workers etc, it all means growth to our service sectors and based on our short electoral cycle it makes perfect sense.

      • The increased competition for jobs would decrease wages and therefore increase labour productivity and make the country better off. That is provided you don’t work for a living in which case you would be worse off, but those people don’t matter.

  5. I get this feeling, more now perhaps than at any time post 08, that Australia is about to tip over. With interest rates this low and the word ’emergency’ bandied about willy-nilly, the average punter will question wether or not he’s being punked into borrowing more money and refrain from doing so.

    I personally feel the most pessimistic about Australia’s economic prospects I’ve felt since 08.

    • Now you’re just being a negative Nellie, Ortega! … Stop talking the economy down or else The World’s Most Treasured Treasurer is going to give you a dress-down over your infectious negativity!