Saturday, March 4, 2017
After going backwards by 0.5 per cent in the September quarter of last year, we learnt from the Bureau of Statistics' national accounts that the economy rebounded by 1.1 per cent in the December quarter - meaning, according to the overexcited children of economic reporting, that we've escaped "technical" recession.
Actually, anyone with sense knew three months ago we would. The detail of the national accounts showed the contraction was no more than a pothole on the economic road, the product of an unusual accumulation of negative one-offs.
But even if this week's figures had shown a second consecutive quarter of "negative growth", the recession the excitables would be shouting about would be technical rather than real.
Why? Because you can't have a real recession without falling employment and rising unemployment, and we've had neither. Oh. No one told me.
But back to reality. Just as the economy didn't really contract in the September quarter so, however, the economy didn't really take off like a rocket in the December quarter.
There's a lot of largely inexplicable "noise" in the initial estimates of the quarter-to-quarter change in real gross domestic product. That's why adult economists never take the figures too literally.
It's common for a literally unbelievably bad quarterly figure to be followed by an unbelievably good one.
That's partly because of catch-up – work that couldn't be done in the first quarter because of, say, bad weather, is caught up with in the second.
But also because of the laws of arithmetic. If we compare the December quarter with the weak September quarter, we get an increase of 1.1 per cent. But compare it with the quarter before that and the increase is only 0.6 per cent.
The rate of real GDP growth over the year to December – 2.4 per cent – is closer to the rate at which we're likely to actually be travelling, but even that may be on the light side.
One suspiciously strong aspect of the accounts in the December quarter was growth in consumer spending of 0.9 per cent.
With the rise in wages so small, and only modest growth in employment, household disposable (that is, after-tax) income grew by only 0.2 per cent in nominal terms.
So how could consumer spending have grown so strongly? Since, by definition, income equals consumption plus saving, the statisticians assume households must have reduced their rate of saving.
The national accounts show the household saving ratio peaking at almost 10 per cent of household disposable income at the end of 2011, then falling almost continuously since then, taking a big drop in the December quarter to reach a little over 5 per cent.
If that's really happened and isn't just the product of some misestimate of income or consumption (or both), it's probably explained by a "wealth effect" – people in Melbourne and Sydney, seeing the value of their homes shooting up, feel wealthier and so decide they don't need to save as much and can spend more.
The next bit of apparent good news is that new business investment spending grew by almost 2 per cent. This, believe it or not, included an increase in mining investment, plus a stronger-than-usual increase in non-mining investment.
The former is likely to be just a blip as mining investment continues to fall back to normal, post-boom levels; the latter is an encouraging sign that the rest of business is getting on with the rest of their lives.
The last bit of good news in the accounts is that our terms of trade – the prices we receive for our exports compared with the prices we pay for our imports – improved by 9 per cent during the quarter, taking the improvement for the year to almost 16 per cent.
This is mainly because, after falling sharply since their peak 2011, coal and iron ore prices rose over most of last year.
This is important for several reasons. An improvement in our terms of trade increases our real income – since the same quantity of our exports now buys an increased quantity of imports.
"Real net national disposable income per person" – a better measure of living standards than real GDP per person – increased 2.5 per cent in the quarter to be 5.3 per cent higher over the year.
Many people noticed that company profits (the profits share of GDP) leapt by 16.5 per cent in nominal terms during the quarter, whereas the nation's wages bill (the wages share of GDP) fell by a nominal 0.5 per cent.
Why the disparity? Mainly because of the huge boost to mining company profits from the jump in export prices.
Not to worry. If the economy works the way the textbook says, this gain to miners should flow through the economy, causing higher wages and higher tax payments.
This latter likelihood is shown in the fact that nominal (as opposed to real) GDP grew 3 per cent in the quarter to be 6.1 per cent higher through the year.
This is great news for the Treasurer because we pay taxes (and everything else) in nominal dollars, not real dollars.
Last word goes to Dr Shane Oliver, of AMP Capital, who says there are seven reasons to be upbeat about the outlook for the economy.
"Thanks to a more flexible economy, Australia is on track to take out the Netherlands for the longest period without a recession. South-east Australia is continuing to perform well.
"The great mining investment unwind is near the bottom. The surge in resource export volumes has more to go.
"National income is rising again. Public investment is strong and there are signs of life in non-mining investment. Growth is on track to return to near 3 per cent this year," Oliver concludes.