Yesterday’s national accounts make uncomfortable reading, not just for the economic Hanrahans but also for spruikers of two great media-driven issues of the past year: productivity and the death of manufacturing.
Yesterday’s data significantly changed what we know of GDP per hours worked (ie: labour productivity) over the past year. The March quarter saw GDP per hours worked rise by 0.9%. And the upwards revision of GDP in previous quarters also saw GDP per hours worked from 2011 rise. The December quarter saw a rise of 0.9% as well, and the September quarter 0.7%. Market sector gross value added per hours worked rose even faster — by 1.2%, 1.2% and 1.0% over the March, December and September quarter. In fact, the past year has seen the fastest GVA per hours worked growth since 2003.
So, memo to the worry warts at The Australian, Fairfax (especially the Financial Review) and Business Spectator (especially Bob Gottliebsen): right through the whole time we’ve been hearing economists and the business community whingeing about labour productivity over the past 12 months, it’s been going up at a faster rate than at any time in a decade. Where to now for the IR deregulationists?
The data is especially humiliating for Business Council president Tony Shepherd. Today the BCA is releasing a report purporting to demonstrate how much more expensive projects are and how much less productive Australian workers are compared to the United States. The report was given to The Australian, where that good and faithful servant of the party line, Annabel Hepworth, gave it a free plug, including repeating its claim that “productivity is getting worse”. No one else has been given access to it, so the BCA gets lots of free publicity but no effective scrutiny.
But, inconveniently, yesterday’s data has put in context all the whining about how slack Australian workers are that we’ve been hearing for months. And, by the way, what about US labour productivity? Yesterday, the US Labor Department said productivity in the Land of the Free dropped 0.9% in the first three months of the year, compared to an earlier estimate of a 0.5% decline.
The improvement in productivity here seems to be coming as employers trim workforces to more closely match demand, rather than hang on to labour in the expectation of a surge in demand. Hours worked are flat or have even fell, while GDP output has increased. The change seems to have started in the second half of the year as demand from retailing and home building and some parts of manufacturing eased. In other words, companies and businesses have cut staff levels, but been able to maintain or boost output from the smaller workforce.
In commentary on the data, Westpac said that “as the labour hoarding of 2010 gave way to the efficiency drive (read weak employment in the currency/consumer/interest rate sensitive sectors) of 2011, productivity has improved, but supply side shocks blurred the underlying trend. The productivity payoff now seems to be coming through, helped by increasing supply capability and capacity utilisation in the resource sector, but in the non-mining economy perhaps at the (temporary) expense of the level of employment.”
There’s a related tale about manufacturing, which we’ve been told for more than a year is a basket case. The sector has been shedding workers rapidly — more than 30,000 in the 12 months to February. Yesterday, the ABS said the trend estimate showed a contraction of 0.5% in the quarter in manufacturing while the seasonally adjusted figure was down 0.8%: “The contraction in Manufacturing was mainly driven by food, beverage and tobacco manufacturing (-6.0%).” Westpac termed manufacturing growth “anaemic”.
But it depends which area of manufacturing you’re talking about. “Metal products continue to do alright (sic) (4.2%yr), as do some of the heavy industrial sectors (petroleum, coal, rubber and chemicals activity is up 3.7%yr, machinery and equipment 4.7%yr), indicating that some residual benefit from the engineering construction boom is coming the sector’s way, but the benefits are patchy rather than universal. Those manufacturers that are feeling the pinch are those exposed to the high currency (exporting and import-competing firms) and those servicing the weak non-infrastructure construction segment,” Westpac added.
Manufacturing remains a large, varied sector of the economy and a big employer. Parts of it are facing a competitive shock from the high dollar. That is driving productivity gains within the sector, as well as driving out less efficient and productive businesses. That’s what competition does. And it’s curious, but whenever business talks about productivity, they don’t seem to talk about the need for more competition, just the need to reduce wages and conditions for their employees.
And finally, where are all the inflationistas who worry that inflation is out there, just waiting to devour us, thanks to rising oil prices (now easing), the price of bananas (up and down in a year) or the carbon tax? Since the March quarter consumer price data was released, the inflationistas have gone into hibernation, and so they should be, as the national accounts confirm, inflation is not a worry and in fact there were signs of deflation in the quarter (which we saw from the prices of fresh fruit and vegetables).
The ABS uses a series of deflators to measure costs in the national accounts. The household consumption deflator (HCD) was flat in the quarter, for an annual rate in the year to March at 1.4% (the headline CPI was 1.6%). The Gross National Expenditure deflator (which is unaffected by the falling terms of trade) was flat, leaving the annual rate at just 1.0%.
The overall GDP implicit price deflator (which is impacted by the terms of trade) fell 1.0% in the quarter to be up just 0.2% over the year (thanks to the falls in the terms of trade in the quarter and the year). Westpac commented “The weight of evidence is overwhelming: the overall economic environment is clearly disinflationary at present.”
The inflationistas can stay in their burrows for at least the rest of winter.