Given what has happened in the global iron ore market since June 30, the second quarter GDP figures released this morning by the ABS are indeed historical. Growth was solid, slowing to a quarter on quarter pace of 0.6% (a still strong 3.7% annual rate) from 1.4% (4.4% annual) in March. But that was of little help in understanding where the economy is now travelling, and what the Reserve Bank will do.
Despite all those gloomy consumer sentiment surveys and business lamentation, the GDP data shows that consumption kept the economy growing in the June quarter — up 0.6%. A 0.3% rise in exports helped as well as volumes grew faster than expected and more than offset weakness in the price of iron ore and coal in particular. The ABS also revised its originally reported 1.3% rise in the March quarter, which took analysts by surprise and prompted incredulity in some quarters, upward to 1.4% in revisions..
The ABS said that a fall in the contribution from stocks (inventories) of 0.3% (normally not such a bad thing) and a small 0.1% from the slump in dwelling investment were the main detractors from growth in the quarter. The industries that drove growth in the March quarter were wholesale trade, transport and professional and scientific and technical services (one of our fastest-growing employers), each contributing 0.1% to growth in GDP.
The June quarter saw the terms of trade fall 0.6%, slower than the revised 3.8% (4.3% originally reported) fall in our terms of trade in the March quarter. That looks to have been a temporary slowing in the rate of decline, given the sharp fall in iron ore price sin the past month, although the prices of copper, gold, oil and LNG have remained solid.
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On the expenditure side, the ABS said the main contributors were household final consumption expenditure (0.3 percentage points), general government final consumption expenditure (0.3 points — don’t expect that to continue), and net exports (0.3 percentage points). The saving rate remained above 9% at 9.2% (down from 9.3% in the March quarter).
And, contrary to what we’ve been repeatedly told by business and the commentariat, productivity again improved in the quarter. “In trend terms, hours worked fell -0.1% during the quarter with through the year change at 0.3%. In the market sector hours worked was flat during the quarter (0.0%) with through the year change at -0.4%. In the June quarter 2012, GDP per hour worked (in trend terms) rose 0.9%. Market sector gross value added (or GVA) per hour worked (in trend terms) rose 0.9% in the quarter and by 3.7% through the year.”
So much for the productivity crisis — labour productivity rose 3.7% in 2011-12. What was that about the Fair Work Act harming productivity?
Another positive was the continuing performance of NSW, our biggest economy. While WA is still surging — State Final Demand grew 2.1% in the quarter for an annual 15.9% growth, NSW’s State Final Demand grew 1.5% in the quarter; Queensland’s grew 3.6%. Compared to other major economies, Australia’s 3.7% growth rate for the year to June was better than the US (2.3%), the UK (-0.5%), Germany (1%), France (0.3%), Italy (-2.5%), Spain (-1.3%), Japan (3.5%) and South Korea (2.4%). China’s growth was 7.6%.
But, to repeat, this is historical stuff. After yesterday’s post-meeting statement from governor Glenn Stevens, the RBA is clearly more wary about China’s slowdown, which is looking bumpier by the week. And it is increasingly wary as well about what is happening in Australia. That is why the unemployment data for August, out tomorrow, will give a better hint than anything in the GDP data. Likewise with the 0.8% fall in seasonally adjusted retail sales in July and the still weak lending data for homes and now business (after a brief two-month jump). The ANZ job ads survey for August showed another fall as well.
Moreover, surveys of manufacturing (which detracted from growth in the June quarter) and services in August were both poor. In fact the services sector, the biggest part of the economy, contracted for the seventh straight month in August. The Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (PSI), released this morning fell 4.1 points to 42.4 in August. A reading of below 50 indicates a contraction in the sector.
But against that, car sales data from the Federation Chamber of Automotive Industries showed August was another solid month. The chamber said 93,552 vehicles were sold in August 2012, an increase of 6.2% (or 5470 vehicles) compared to August 2011. The chamber said that overall, 728,047 vehicles (cars, SUVs, light commercials and trucks) have been sold since the beginning of 2012. This is a 9.4% more (62,738 vehicles) than for the same period of 2011.
Sales are up everywhere but Tasmania, the chamber said. The ABS said the 0.6% rise in household consumption in the June quarter figures came from a number of factors, the most important being the 0.3% from the purchase of vehicles. Cars looks like playing a big part this quarter judging car sales so far in July and August.