GDP Grows by 1.3%

Well today at 11:30 the ABS released the National Accounts, and wow!

I mean wow!!

What a beautiful set of numbers. Quarterly GDP growth of 1.3% in seasonally adjusted terms and 0.9% in trend terms, leading to a booming annual seasonally adjusted GDP growth of 4.3%.

One of the reasons the annual growth is so huge (and unexpected) is that today’s figures showed a few revisions on past numbers.

The growth in both the September and December quarters of 2011 were revised up 0.2% – thus adding an unexpected 0.4% to the annual growth. Incidentally the ABS now measures the GDP decline due to the QLD floods and Cyclone Yasi in the March 2011 quarter as having been a fall of 0.5% compared to the previous measure of 0.3%.

But no one saw the 1.3% quarterly growth coming. 

And the year on year growth figures show just how well we’re doing now compared to the past (let alone to the horrible economies in Europe and the USA – the USA first quarter growth showed an annual growth of just 1.9% – less than half our growth)

The seasonally adjusted figure does look to be above the trend – but remember the trend figure will be revised in future months to take account of it.

Bear in mind as well that the Budget estimated the 2011-12 GDP growth would be 3%. To achieve that level of growth, the June quarter only needs to grow by 0.1% (assuming no downward revisions).

Today’s figures certainly justify Wayne Swan’s decision to move the budget back into surplus, as the 12 month growth of 4.3% is well above the 30 year average of 3.18%.

So where was all the growth? Well a look at the growth in State Demand over the past 12 months shows WA and QLD are leading the charge:

 

Yes WA grew by 14% in the past year (and it includes a fall in state demand in the December quarter).

The non-mining states grew below the national GDP average growth (slightly in the case of SA and Vic), but Tasmania remains the only state truly missing out on any benefits of the boom in terms of growth.

The figures also showed that the Terms of Trade had declined, which is largely in line with what was predicated in the 2012-13 Budget – though perhaps a bigger fall than expected

This decline in the terms of trade led not surprisingly to a decline in the share of total income by profits:

And thus as well the compensation of employees share of income also increased.

This also fed into the rise in real-unit labour costs. But before you start thinking “wages breakout” remember the Wages Price Index released last week – it was on average for the past 10 years.

Also in terms of productivity, the quarter was very good – an increase of 2% in seasonally adjusted terms, and 0.9% in trend terms.

All in all, when tomorrow’s Industrial disputes figures come out for the March quarter, recall this increase in productivity over the past 4 quarters is a very solid 3.9% – the best 4 quarter growth since December 2001.

 

So why is this great news not reflected in all of us walking around feeling rich? Matt Cowgill noted the difference between real net disposable income and GDP Growth:

Disposable income growth was flat in the last quarter and was negative the quarter before that, but in annual terms, net disposable income is 4.0% – pretty much in line with the 4.3% GDP growth.

So I think it is more likely we are still scarred by the GFC, we still see horrors in Europe and elsewhere and thus we remain in the post GFC world of spending and saving:

This attitude has fed into the low inflation and thus low interest rate economy we find ourselves. There’s nothing wrong with this – in fact, it is a great long term place to be.

Strong growth, low unemployment, inflation, and interest rates.

You don’t get much better than that.

Joe Hockey said today in response:

"The scariest thing in Australia is Wayne Swan. Imagine how well our country could do if we had a good Government.”

Or, in other words, these good figures prove the Government is bad.

Yeah, GDP growth might be increasing, but logic sure as hell ain’t.

RBA cuts cash rate to 3.50%

Today the RBA decided to cut the cash rate by 25 basis points to 3.5%. This was no doubt a shock to Tony Abbott who yesterday was saying:

“We’ll get taxes down, we'll get spending down and that can take the pressure off interest rates.''

Given the only pressure on interest rates is downward pressure, I guess this means his Government will do all it can to reduce that…

The RBA mostly cited overseas concerns:

Financial market sentiment has deteriorated over the past month. The Board has noted previously that Europe would remain a potential source of adverse shocks. Europe's economic and financial prospects have again been clouded by weakening growth, heightened political uncertainty and concerns about fiscal sustainability and the strength of some banks. Capital markets remain open to corporations and well-rated banks, but spreads have increased. Long-term interest rates faced by highly rated sovereigns, including Australia, have fallen to exceptionally low levels. Share markets have declined.
…
At today's meeting, the Board judged that, with modest domestic growth and a weaker and more uncertain international environment, the outlook for inflation afforded scope for a more accommodative stance of monetary policy.

Once again the RBA continues to neglect to cite that we have in power the worst Government since Whitlam. Disgraceful oversight, really.

Anyhoo here is the graph of the cash rate over the past 20 years. The rate is now 3.50%, well below the 20 year average of 5.38%

Now as we all now, we don’t get the cash rate for our home loans, so assuming the banks only pass on 80% of the cut like they did last month, here’s the chart of the standard variable rate:

At a projected 6.85%, it is below the 20 year average of 7.78%. (Also note the standard variable rate in November 2007 was 8.55%)

The small overdraft for small businesses picture is below:

 

Here the projected rate of 10.4% is above the 20 years average of 9.85% – though just below the November 2007 rate of 10.90%.

Last month banks passed on only half of the 50 basis points cut in the cash rate to the small overdraft rate. It’s why talk of monetary policy is all well and good, but currently the impact is most occurring on the consumer side, not the producer side – this will necessarily weaken the stimulatory impacts of any drop in the cash rate. The Liberals can rant all they want over averages and where the rates are now compared to where they were when, but until it can explain how it will reduce the current spreads between the cash rate and the standard variable and small overdraft rates, then they’re just blowing smoke up everyone’s arse.

Out of interest here (via the RBA) is a graph of the variable home loan rate since 1959.

The 53 year average is 8.75%.

I might write a bit more about interest rates in my Drum piece next week. If not, I’ll post the graphs I’m messing around with at the moment here next week.

***

Yesterday there was a bit of talk around about the poor performance of the Japanese stock market and how it was below levels seen in the 1980s. I thought I’d have a look at how the USA, Japanese , UK and Australian stock markets have gone since 1984 (the earliest I can get complete comparative figures)

It’s not a pretty picture for Japanese.

And incidentally here is the performance of the Dow Jones Index since 1928.

The scale does exaggerate the recent movements a bit, but still… 

Justin in the comments suggests I do a log scale graph to show better what has been going on since 1928. Good idea:

It shows just how the Great Depression bottomed out in 1929-31, and also depicts the post-war boom quite nicely. Then there is the flatness from around 1965-1982 and then boom again. [in an earlier draft I referred to the stock market crash of 1927, which of course should be 1929, bit of a brain flub there!]

And for something completely meaningless, given economies don’t reset each decade, here’s a comparison of the performance of the Dow Jones in each decade from the 1970s (I originally had just from the 1970s, but I got a bit excited and decided to throw in the 50s and 60s – I also used monthly measure, rather than daily):

 

The 2000s and the 1970s bookended the two boom decades of the 1980s and 1990s, but it’s interesting to note of the 6 decades, 3 have been good, 3 have been poor. No middle path. Again, don’t read too much into it – the start and finish of a decade is purely arbitrary and means nothing economically speaking, but given we often speak of the 50s or the 60s, it’s interesting that the 1960s were in no way the boom that were the 1950s. You’d almost think about half way into the decade America got itself stuck into a long, drawn out war in Asia… .

Of the three decades that ended up performing poorly, only the 1970s was doing as well as is the 2010s currently. In fact 30 months in the 2010s are just below where the 1990s and 1970s were at the same point.  But whether it will go like the 1990s or 1970s this graph gives no hint. Right now, I’d bet the 1970s.

Drum Piece: IR, Productivity and the Middle Ground

Today’s Drum piece was on IR and productivity and the desire to be seen as in the middle.

For some reason one of the graphs was repeated and a couple were put in the wrong order. Rather annoying… Thanks to Matt Cowgill for pointing it out to me (much admit I hadn’t bothered to check). Here are the actual graphs in the correct order:

The first graph I used is from the blog, VoteView and looks at the way the Republican Party has gone to the right since 1975.

The next working days lost figures will be out next week, here’s the ones up till the December Quarter 2011. No doubt if there is an increase, all hell will be reported to have broken lose, economy in ruins, destruction throughout the country etc tetc…

Wages growth is pretty flat. 

Mining sector increased in the past quarter (though after a couple below trend periods, this is not a shock)

Mining wages growth over other industries certainly doesn’t display any real trend of horrors (God knows what was happening in 2006-07 – that must have been when the economy was in a big hole..)

Mining might be generating lots of economic growth, but it ain;t doing much towards generating productivity growth.

This one comes via Matt Cowgill – National income has risen since 2003 at a much faster rate than GDP. One could suggest one of the reasons productivity growth has not increased is because corporations haven’t needed to worry greatly about it because increases in terms of trade etc have allowed them to make money with less productive means:

Corporation certainly haven’t had to worry about declining share of national income since 2003.

***

Today the retail trade figures were released. The seasonally adjusted figure was down 0.2%, the trend figure was up 0.3%

The big falls were in Departmental and Household goods. Food retailing trade increased.

The reason for only a 0.2% decline is because food retailing accounts for 40% of all retail trade:

Drum Piece: Consumer Confidence

My Drum piece today is on consumer confidence and whether or not it is as important as we suppose.

It is a damn hard thing to demonstrate correlation between it and economic growth, though I’m sure it can be done – with varying degrees of confidence and holding various assumptions. 

I try to avoid too much regression analysis – though it certainly has its place, and just like looking at graphs and seeing what picture is told. Personally rather than look at “confidence” I’d rather more time is spent looking at a variety of measures (including non-economic) such as occurs with the OPEC  Better Life Index. Also we can always have a look at the good old “Misery Index” which adds the unemployment rate and inflation rates together (a lower score means less ‘misery’):

Here, by comparison, is the Westpac Melbourne Institute Consumer Confidence Index over the same period:

And together:

Which perhaps suggests, we’re more confident about our misery now…

Anyhow here are the graphs:

Here’s a similar graph looking at a few more countries:

March Wage Price Index: Where’s my wages breakout??

Today the ABS released its quarterly wage price index figures, and once again we found that unions are absolutely incapable of delivering what the right-wing press and Liberal Party expect them to do.

Wages break out? That’d be a no:

The Annual Wage Price Index shows the same thing:

And if we look at the Wage Price Index over inflation, we see an uptick in real terms, but this is due mostly to the absurdly low quarterly rate of inflation – a mere 0.3% in trimmed means terms – the lowest increase since 1998. 

Pretty much the worst spin the you could put on it was that the rise was “above expectations”:

The wage price index advanced 3.6 per cent in the first quarter from a year earlier, today’s report showed. Economists forecast a 3.5 per cent gain from a year earlier.

The big wage increase was in mining – not surprising, that’s where the demand for labour is:

Mining has shown an increase of late – a 2.2% jump in the wage price index in the March quarter:

But as we can see on annual growth terms it is well below where it was in 2008 (ie prior to the introduction of the Fair Work Act), and around where it was in 2005 and 2006. The simple fact is demand does drive wages – and so too do skill shortages. What is important is that wage growth in a booming sector does not lead to growth in other sectors which are not booming. Clearly wages growth in the mining industry is not flowing into other industries.

A year ago the Shadow IR Spokesman Eric Abetz gave a speech to the Australian Industry Group. He said:

The Coalition is concerned that we will see huge levels of wages growth across Australia if action is not taken to ensure sustainable pay increases
….
Such unsustainable wages growth [in the construction sector] will increase inflation, increase the cost of living and increase pressure on interest rates. That destructive trifecta always results in job losses.
…
The simple fact is Labor has strengthened  the unions’ hand  by expanding right of entry. They have allowed the Australian Building and Construction Commission to be weakened and are now allowing wages growth to spiral out of control.

Abetz must be quite glad that in the 12 months since he made that speech, wages growth in the construction industry has stayed steady – and below that seen from 2004-2009:

Used to be a time a “wages spiral” actually led to increased wages…

As for Abetz’s concerns about inflation – lets have a look at how that’s gone in the time since Abetz gave his speech:

:

Interest rates? Well since Abetz gave his speech the cash rate has dropped a full one percentage point.

And job losses? Well as we we saw last week, the unemployment rate is now 4.9% – below the 10 year average of 5.2%.

Someone should let Abetz know that he can sleep soundly – his worries were just figments of his imagination.