I cannot ever recall a time when the nation’s production, as measured by real GDP, has diverged so much from the growth in Australian’s living standards.
To illustrate why, I have once again deflated three measures of the domestic economy, as provided in the June quarter national accounts (released yesterday), by the ABS’ population data, in order to ascertain the underlying strength of the domestic economy in per capita trend terms.
The three measures chosen are:
- National Disposable Income (NDI), which is “considered a good measure of progress for living standards because it is an indicator of Australians’ capacity to purchase goods and services for consumption” (see ABS explanation here).
- Gross national expenditure (GNE), which is “the total expenditure within a given period by Australian residents on final goods and services (i.e. excluding goods and services used up during the period in the process of production). It is equivalent to gross domestic product plus imports of goods and services less exports of goods and services”.
- Domestic final demand (DFD), which is the sum of “government final consumption expenditure, household final consumption expenditure, private gross fixed capital formation and the gross fixed capital formation of public corporations and general government”.
First, let’s consider real per capita NDI. As shown below, this measure rose another 1.2% in the December quarter in trend terms to be up by 3.8% over the year. However, real per capita NDI has still fallen by 1.8% since December 2011, suggesting falling living standards:
Per capita NDI is also just 2.3% higher than September 2008 – that’s more than eight years with stuff all income growth.
The divergence between per capita NDI and GDP remains stark:
Since December 2011, real GDP per capita has risen by 4.6% compared with a 1.8% decline in real per capita NDI.
Another worrying trend is the degree to which Australian workers have failed to benefit from the recent rebound in the terms-of-trade and NDI. As shown in the next chart, average nominal compensation per employee collapsed to the lowest level on record in December 2016, recording just 0.1% growth over the 2016 calendar year:
If you factor in inflation (CPI), which was 1.5% in the 2016 calendar year, then the average Australian worker’s income went backwards.
Similar trends are evident with GNE and DFD, which have also fallen since June 2012:
Essentially, the big expansion in commodity export volumes that has occurred in recent years has supporting headline GDP but hidden the fact that the domestic economy remains weak, propped-up by mass immigration.
An examination of the national accounts data also shows that real per capita NDI since the onset of the GFC has grown more slowly than at the same time after the recessions of the 1970s, 1980s and 1990s. Again, real per capita NDI has risen just 2.3% since September 2008 versus 3.3% growth at the same point after the 1970s recession, 10.5% growth at the same point after the 1980s recession, and 13.3% growth at the same point after the early-1990s recession:
Where NDI goes from here will depend primarily on the movement in commodity prices and the terms-of-trade, which will peak Q1 and fall all year:
It is worth also noting that Australia’s GDP growth has been lacklustre despite the record mining investment followed by surging export volumes, along with the stimulatory effects of the housing bubble. Once we subtract population growth, Australia’s performance since the GFC has been worse than the 1970s, 1980s and 1990s recessions:
34 quarters after the onset of the GFC (June 2008), GDP per capita has only risen by 7.2%.
Moreover, Australia’s 10-year annualised growth in per capita GDP is now tracking at its lowest level on record – i.e. even worse than the 1980s and early-1990s recessions:
And remember, the Australian economy still faces the prospect of falling mining investment, falling housing construction (probably from late this year or early next year), and the car industry’s closure in October, which will only be partially offset by rising export volumes.
This is why we keep arguing that Australia is experiencing its own “lost decade”.