Australia’s business economists have run into a bit of rough trot with their forecasts for major economic statistics. In the past week they have been wide of the mark, in fact very wide of the mark, on a series of major figures from the Australian Bureau of Statistics.

Now this is not a sledge of the tea leaf readers, it’s more to point out that the wide divergence could mean the Australian economy is not doing as well as we all thought. Let’s look at the figures in sequence of release.

A week ago the ABS revealed there had been a strong increase in the value of construction work done in the September quarter of 2.8%: the consensus from market economists was for a 1.7% rise.

That’s usually a bit of a hint as to how new private capital spending is travelling so there were a few fiddles with estimates and the market consensus was for a rise of 1.7% in the September quarter. But the ABS revealed a surprise 6.5% slowdown. The figures showed the fall was driven by a slump in building and construction. Building was down 9.4% in the quarter.

Yesterday the latest ABS figures on our international trade position for October saw another surprise: a 36-year high for the trade deficit. October’s goods and services deficit widened to $2.983 billion, seasonally adjusted, marking it the worst level since records of the monthly measure began being kept in 1971.

The result compared to an upwardly revised $1.916 billion in September and economists had been forecasting a deficit around $1.9 billion for the month. Oops.

And another set of ABS figures revealed a surprise drop in corporate profits in the September quarter, which surprised as much as last week’s drop in capital spending because both go directly against evidence from other sources about what’s happening in the economy.

The Bureau said profits fell by a seasonally adjusted 2.1% in the September quarter to $46.52 billion. (The ABS measures gross operating profit as earnings before tax, interest, depreciation and amortization. It excludes asset sales and foreign exchange gains or losses.) Economists in the market had been forecasting a 2% rise. Oops again.

Forecasts for business inventories were also wide of the mark: they rose by a seasonally adjusted 1.3% in the September quarter, according to the ABS indicators, well above the consensus forecast from the market of a 0.50% rise.

Generally the forecasts from market economists are fairly close to the mark, so the divergence on such key stats that go to the heart of our current economic performance should raise a question or two about what is really happening in the economy.

Are these surprises just one-offs due to the vagaries of timing etc etc? Certainly the poor trade performance was linked to the higher Australian dollar, port congestion and the full impact of the drought.

These figures have been fed into the September quarter National Accounts to be released at 11.30am tomorrow morning, two hours after the Reserve Bank’s interest rate decision.

You can guarantee that there will be a flock of market/business economists waiting to pore over the figures to try and find out what’s really going on, not to mention their peers in the RBA and Treasury.

Peter Fray

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