Australia’s seven year recession

The reaction to last week’s national accounts release featured various talking heads attempting to put lipstick on a pig.

The most notable of these was Treasurer Josh Frydenberg, who trumpeted the Australian economy’s 28th year of uninterrupted growth and “remarkable resilience”:

Along similar lines, The AFR declared that Australia’s standard of living has soared to record highs:

A mix of high resource prices and rising wages have helped Australia dig itself out of an income recession and reach a record standard of living as measured by disposable income per person…

KPMG chief economist Brendan Rynne said the reasons for the rising income went beyond strong mining profits.

“What you are also seeing is a recovery in wages and that recovery in wages has been taking some time to come through but you are seeing it,” Dr Rynne said.

Whereas AMP chief economist, Shane Oliver, claimed there were “a bunch of positives that should help the economy avoid a recession even though growth will remain weak for a while yet”, namely:

  • Rate cuts and tax cuts should provide some growth boost;
  • The threat of crashing property prices looks to be receding;
  • Infrastructure spending is booming;
  • The low $A is helping to support the economy;
  • The business investment outlook is slowly improving;
  • Australia has a current account surplus;
  • There is scope for extra fiscal stimulus;
  • Population growth remains strong; and
  • Finally, cyclical spending (consumer durables, housing and business investment) as a share of GDP remains low.

What is completely ignored by each of these pundits is that for the very part of the economy that matters the most – Australian households – the economy has been in recession for seven long years.

Consider the below evidence.

First, and most importantly, real household disposable income (HDI) per capita has fallen 0.5% over the past seven years:

Moreover, Australia has experienced the lowest HDI growth of all OECD nations in the five years to 2019:

Real average employee compensation has also fallen by 2.9% since March 2012:

The reason why the aggregate Australian economy has grown while real per capita HDI and average employee compensation has fallen is because the share of national income flowing to wages has hit the lowest level since the mid-1960s:

So, while corporate Australia has done handsomely, Australian households have gone backwards:

Second, gross national expenditure (GNE) – which measures “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” – has recorded zero growth since March 2012:

Put simply, Australia’s economy has been in recession for seven years from the perspective of households.

This is remarkable given we are at the tail end of the global business cycle when the economy is supposed to be booming. This also makes Australia a “sitting duck” as the global cycle slides towards its end.

Comments

  1. Cost IndexMEMBER

    About time. Australians can do some solid thinking in the naughty corner and reconsider their behaviour before rejoining the rest of the world classroom.

  2. What is remarkable about the seven year recession is that the voters returned the party to power that has reigned over them during these seven years.

    Why? Was it that voters hoped to win the housing jackpot someday, or some other reason?

  3. It all starts with the CPI con job. No wage rises, disposable incomes trashed and the frog’s boiling. Add a dash of eye watering debt levels and voila. Love it. Just desserts to follow.

      • If they had of used a genuinely representative ‘basket’ to measure prices, including housing, without the statistical manipulation, we’d have had much higher official inflation over the last twenty years. Interest rates wouldn’t have been slashed to emergency levels, this dopey land speculation racket wouldn’t have had the same underpinnings and we might actually have a real productive economy. Instead we have a fairyland story about low inflation, resulting in zero wage growth, massive debt levels and everyone scratching their heads as to why the jumper cables no longer work.

        • Fabian AlderseyMEMBER

          Data is available on the price of land/ house price appreciation. It isn’t included in CPI because it isn’t considered a “consumption” item. It’s on the RBA to decide what they look at (as I say, the data is available). This is on the RBA, not the ABS.

    • Anecdotally a lot of the homes that I’ve seen sold in areas I’m looking at, have turned up for rent a month or 2 later. So I think a lot of it is negative gearing + investor buying to be honest.

      • Exactly Gav, a few properties I’ve been interested in, unrealistic asking prices didn’t sell within 4 months, suddenly disappeared from Domain, ended up being rented again. However I’m anticipating as the global economy continues to turn down, 2020 should see these same properties returned with more reasonable prices competing with a lot more properties. Average weekly earnings may have increased but I’m expecting part-time employment to increase more, as the economy continues to slow and household savings ratio to also continue to decline to meet mortgage debt despite the anticipated few trickles down in rates.

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