God bless Goldman’s Tim Toohey and Andrew Boak:
Official data merit greater attention
In the past week, media outlets printed 70 articles in Australia on a weekly measure of consumer confidence. To our knowledge, no articles were published on the information from the most comprehensive report card on economic conditions, the Annual National Accounts. In our view, detailed and rigorous official reports from the ABS are worthy of greater attention, while at the same time we have seen an over-emphasis on high-frequency private-sector surveys.
Important messages from the National Accounts
We highlight seven key themes from the National Accounts:
1. 2014-15 GDP growth was revised lower with a risk that 2Q15 was flat.
2. Many key activity growth measures are historically low, including nominal GDP expanding by the slowest since 1961-62.
3. Productivity ex mining and utilities was 1% – less than half the 3 year average. Insufficient top-line sales growth remains problematic.
4. Public sector related industries expanded rapidly at a time of reported fiscal constraint and contributed 0.8% to the 1.8% GDP(P) growth in 14-15.
5. Scientific and technical services (6% of GDP) contributed 40% of all new jobs in 2014-15 despite output in this sector declining 2.3%pa for 2 years. We discuss whether Australia is investing in disruption or future growth.
6. Mining investment as a share of GDP is 5.6% down from a peak of 7.5%. A further fall of 4% of GDP may still be required.
7. Few signs of underinvestment by government and service sectors.
Survey bias amid long periods of subdued growth
Are business and consumer surveys reporting a return to ‘around average’ conditions? We highlight the danger of ignoring the signal from the official economic data in preference to private-sector surveys. We suggest that an extended period of sub-trend growth results in an upward bias in surveys as new respondents enter the survey group. Similarly, surveys are likely biased upwards during periods where expectations of ‘potential’ growth are reset lower. We also provide a reminder that academic studies repeatedly fail to identify the ability of surveys to provide a reliable lead on economic growth. We believe there are dangers of becoming overly reliant on surveys when setting forward-looking policy, particularly during a period of structural change.
What Mssrs Toohey and Boak are banging their heads against here is the ‘dumb bubble’.
