Good time to build an Aussie bridge

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Most of the Aussie GDP broker reports out today are cautiously optimistic. The following from Morgan Stanley is less so and much closer to the truth:

2Q GDP came in at +0.8% qoq (1.8% yoy), slightly missing consensus on household services. Income/savings trends reinforce our concerns around the consumer ‘Crunch Time’, although public investment has continued to pick up. We remain cautious on growth, and see the RBA on hold through 2018. Underlyinggrowth remains weak: Real 2Q GDP rose +0.8% qoq,a little below consensus (which had moved higher on the surprising partials), leaving yearended growth still below potential at 1.8% yoy.For the quarter, we saw nondiscretionary consumption disappoint (+0.2% qoq, +3.4% yoy in real terms). Inventories showed signs of clearance, detracting -0.6ppt from growth. The LNGrelated spend in last week’s construction data did not drop into the national accounts measure, with private business investment falling -2.2% in the quarter (detracting -0.3ppt from GDP), while public spending surged 3.4% qoq,adding 0.8ppt to GDP.

Crunch Time for households: We were most focused on the household income and spending data in today’s national accounts,and the picture remains challenging. The national accounts provide detail on labour income that strips out the employment of self/family,and this shows average non-farm compensation down -0.3% over the quarter and the year, implying Australia is still collectively taking a pay cut. Average hourly earnings growth also fell by – 0.3% yoy (versus wage inflation in the WPI of 1.9% yoy), marking the first annual contraction since 1993,and showing that structural change in the labour market is still a major drag. As a result, consumption growth is still dependent on population growth and a fall in savings, which has already declined from 6.3% to 4.6% over the past year.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.