Australian GDP in detail: Income shock

ScreenHunter_04 Feb. 08 21.40

By Leith van Onselen

The Australian Bureau of Statistics (ABS) today released the national accounts for the September quarter, which registered a 0.6% increase in real GDP over the quarter and a 2.3% rise over the year. The result disappointed market expectations for 0.7% growth over the quarter and 2.5% growth over the year.

On a per capita basis, however, real GDP increased by only 0.2% and by 0.6% over the year. Further, real national disposable income per capital fell by 1.0% over the quarter and also by 1.0% over the year.

According to the ABS, seasonally adjusted growth for the quarter was driven by:

  • a 1.3% contribution from Public gross fixed capital formation;
  • a 0.7% contribution from net exports; and
  • a 0.4% contribution from Final consumption expenditure; partly offset by
  • a -1.4% contribution from Private gross fixed capital formation.

Over the year, Mining (0.8 percentage points), Financial and insurance services (0.4 percentage points), and Health care and social assistance (0.4 percentage points) were the largest industry contributors to growth, whereas Manufacturing, Electricity, gas, water and waste services, and Wholesale trade detracted 0.1 percentage points from growth in trend terms (see next chart).

ScreenHunter_541 Dec. 04 11.43

Results were mixed at the state and territory level, with final demand growing strongly in the Northern Territory (+1.1%), reasonably in NSW (+0.4%), Victoria (+0.5%), Tasmania (+0.5%), and the ACT (+0.6%), weakly in Queensland and Western Australia (0.1% each), and contracting in South Australia (-0.5%) [Note: state final demand is different to GDP]:

ScreenHunter_542 Dec. 04 11.51

The terms-of-trade fell sharply, down by 3.3% over the quarter on lower commodity prices:

ScreenHunter_543 Dec. 04 11.57

And the falling the terms-of-trade lowered income growth, with real per capital national disposable income (NDI) sliding by 1.0% over the quarter and also by 1.0% over the year. Going forward, income growth will continue to be weak as long as the terms-of-trade unwinds from its current very high level (see below charts).

ScreenHunter_545 Dec. 04 12.00
ScreenHunter_544 Dec. 04 12.00

However, despite the fall in the terms-of-trade, the 7% average decline in the Australian dollar (trade weighted index) over the quarter over meant that nominal GDP rose further above real GDP, which is a positive for government finances:

ScreenHunter_546 Dec. 04 12.02

Real GDP per hour worked was flat over the September quarter but was up 1.0% over the year, suggesting improved labour productivity as the structural adjustment under way continues to create greater efficiencies in the weaker sectors:

ScreenHunter_547 Dec. 04 12.07

Finally, the household savings ratio rose over the quarter to 11.1% from 10.2%, and remains well above the levels of the 2000s housing/credit boom, but below the recent peak level of 12.8% reached in June 2009 in the wake of the financial crisis. Households have clearly returned to long-run norms in regards to their savings behaviour (see next chart).

ScreenHunter_548 Dec. 04 12.11

Arguably, this release foreshadows the new normal for the Australian economy. While headline GDP was reasonable, albeit below trend, per capita real GDP growth remains weak – barely outpacing Australia’s growing population. More importantly, per capita national disposable income fell as the terms-of-trade continues its retracement back towards its long-run average.

Looking ahead, headline GDP growth is likely to remain under pressure as mining capex unwinds, whereas income growth will also face stiff headwinds to the extend that commodity prices and the terms-of-trade drift lower, and the population ages.

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Comments

  1. So we no income growth and increased savings (money removed from circulation) and somehow this equals a GDP boost (remembering we have a CAD not CAS)? Whats wrong with that picture — Oh that’s right dwellings.

  2. Have these figures been helped along by the transfer of the NSW Ports to the private sector last qtr? I seem to remember a similar distortion last year with the Desal plant in Victoria.
    I was almost sure this would be the release that started the panic. Around. where I live there are many shops closing down and few replacing them. Not to mention the obviously lack of jobs out there.

  3. All Good

    ok it s a pathetic result, once mining and Realestate “reverse to mean”, it s not going to be pretty, esp per capita.Abbott better starts spending quick on infrastructure, NBN, green energy (ok my lack of sleep shows for this one) etc..

    • Locus of ControlMEMBER

      I think the NT is suffering a bit of Dutch Disease on a small scale TBH. Most of that growth can be attributed to Inpex. The only businesses cashing in are those associated with the project – concretors, supplies which aren’t being shipped in, local trucking firms, etc.

      It is possible we might have a few quarters of negative growth after Inpex is completed. Why?

      ATM, high ‘boom town’ rents mean locals not getting the big bucks on the Inpex project are cutting back on spending, impacting discretionary retail http://www.macrobusiness.com.au/2013/12/discretionary-retailers-drive-sales-lift/ Our local newsagent (Darwin CBD) confirms sales are waaay down on last year and says other CBD retailers are having the same issues. Not clear whether a CBD problem or also an issue in the suburbs (eg. Cas/ Palmo). Purely anecdotal.

      Hotels are charging high prices (due to high business demand from contractors, etc.). Tourists can’t afford to come here – traditionally the economy is highly reliant on tourists. http://www.ntnews.com.au/business/no-vacancy-company-books-out-500-hotel-rooms-during-peak-tourist-season/story-fnk2tq5v-1226766047196

      While the hotels are full of contractors that won’t matter but Darwin is gaining a reputation as too expensive to visit for the leisure traveller. When all the contractors leave that reputation may take a little while to “shake”, leaving hotels deserted for a bit.

      3,000 people leaving town en masse after construction is done will also drag on growth, at least temporarily.

      Lots of apartments going up too ATM, so construction industry is definitely doing well. They’re all highly priced ($450k + – mainly aircon-reliant dogboxes). Not sure who they’re being sold too. I suspect, primarily domestic investors. When Inpex is done it will be interesting to see if that demand is sustained for new apartments/ construction projects generally or if the hype will wear off and we’ll see a bit of a lull. With so many apartments going up, I am wondering if we will soon have oversupply (can only hope because it might moderate rental price increases).

      Just a few observations from a Darwin local

        • Locus of ControlMEMBER

          http://www.abc.net.au/news/2013-08-14/inpex-gas-project-first-fifo-workers-arrive-at-village/4885974

          According to this article, 2015 sometime, maybe early 2016. First gas to be shipped in 2016 apparently. Most people on site: predicted to be 2015.

          From what I can understand, 2013 has been mainly ground work and dredging of a suitable channel in the harbour for the pipes.

          Will be interesting to see if there are budget blow outs/ deadline over-runs.

          Most people are coming in for the project from interstate. As you can imagine, most locals don’t have the requisite expertise. I believe most will leave after – only a small contingent (300 odd I’ve heard) will be required to maintain/ run the operation.

          We’ll need another big project following up behind so as not to see key economic benchmarks go backwards for a bit from 2017 onwards. I can vouch from personal experience that Darwin seemed very quiet economic activity wise in the interval between Conoco Phillips (completed 2004) and Inpex (FID: January 2012). The biggest thing that went in in that time was the Waterfront (NTG public/ private funding).

  4. And this is before the mining “cliff”. Heard over the grape vine that a few small LNG and mining related firms in NQ might be shutting down/severely down sizing next year.

    • Heard on probably the same vintage of vine, that if there are a couple of good cyclones this year which prevents FNQ companies from normal operations say till the end of March, they will not re open the doors. Hell of a way to run a railroad.WW

  5. Sounds like a great time to buy a house.

    Indebted Australian households are the most irrational economic actors in the world.

    • “Indebted Australian households are the most irrational economic actors in the world.”

      So far they have been pretty right, dont you think so ?, and they are paying off their debt at record pace, more and more are mortgage free.House prices will be supported by our crazy high immigration and the Chinese wall of money (especially if the AUD drop(become dirt cheap for them)), interest rates are only going to be lower once if the income shock materialize.All fine.

      • They aren’t paying their debt off at a record pace. The household debt/GDP ratio has barely moved since the GFC.

        On the other hand the savings rate has increased dramatically. Which says that there are two typical Australian households:
        1) The rational household who can see the writing is on the wall and the days of 7% disposable income growth are yonder
        2) The irrational indebted household, who is still living in far off la la land and thinks 7% disposable income growth is a permanent feature of an advanced economy

        Actually there are 3 typical economic actors at the moment
        1) Business – who can also see the writing on the wall
        2) Rational households
        3) Irrational households

        • “debt/GDP ratio”

          because more houses are bought/built which balance the ones that are paid off.

          “savings rate has increased dramatically” on offsets/principal repayment ?

          “7% disposable income growth”
          no need 7% when your mortgage repayment only decrease overtime.If you plan to save on a saving account/shares that s another matter all together, I am not sure the rational households are the one you think about 😉

          • The point is there is no justification for increasing house prices at the moment.

            Yes interest rates are lower. But expected returns to households are also lower.

            You are missing one side of the equation – the future returns side.

            Pre GFC was totally different.
            – Interest rates were historically low
            – Returns to households were historically high

            The reason was that Australia was caught between 1) a secular fall in the real interest rate (which came from advanced economies and China)
            2) An emerging market upswing which lifted the ToT.

            Increasing house prices were justified because the ToT validated household income growth expectations.

            The ToT was a get out of jail card. We could have been one of the few advanced economies to have avoided a housing bubble. Instead, since mid last year, thanks to the irrational household mentioned above we have managed to create our own bubble.

  6. Keeping in mind the data is only current to the end of Sep – nearly 3 months old. Considering we’ve had Oct, Nov and now into Dec, I’d like to hear the thoughts on the next GDP figure given that in general, the data has not overly deteriorated. Will we have a quarter of post election bounce then back to stagnation or will be it more of the same?