The key macroeconomic issue for ordinary Australians at the moment is whether the strong start to the calendar year we saw in terms of economic activity has been maintained into the June quarter. And this week there’s plenty of evidence to support the Reserve Bank’s forecast that economic growth is softening after the strong 1.1% quarter on quarter growth in the March quarter.
RBA governor Glenn Stevens said on Tuesday after the bank left interest rates on hold:
“In Australia, growth was firmer around the turn of the year, but this resulted mainly from very strong increases in resource exports as new capacity came on line; smaller increases in such exports are likely in coming quarters. Moderate growth has been occurring in consumer demand. A strong expansion in housing construction is now under way. At the same time, resources sector investment spending is starting to decline significantly. Signs of improvement in investment intentions in some other sectors are emerging, but these plans remain tentative as firms wait for more evidence of improved conditions before committing to significant expansion. Public spending is scheduled to be subdued. Overall, the bank still expects growth to be a little below trend over the year ahead.”
The data backs this up. The June quarter figures from the Australian Bureau of Statistics show that two key sectors which made strong contributions to the solid March quarter economic growth — the trade account and retail sales — both show sharp reversals on the strong first quarter performances.
In the trade statistics for June released on Tuesday, the ABS said there was a $7.79 billion turnaround into a deficit of $4.77 billion in the June quarter, compared to the positive contribution of the $3.7 billion turnaround into a surplus of $3.11 billion for the March quarter. That surplus in the March quarter drove the contribution of 1.4 percentage points to GDP, the biggest contribution in the March quarter GDP result of 1.1%.
There’s also been a sharp slowdown in consumer demand via the turnaround in retail sales in the June quarter. The ABS said in the retail sales figures for the month of June and the June quarter that “In volume terms, the seasonally adjusted estimate for the June quarter 2014 fell 0.2% following a rise of 1.3% in the March quarter 2014 and a rise of 1.2% in the December quarter 2013.”
Much of that was from an especially dire May result, when sales fell 0.5% in seasonally adjusted terms as the government ramped up its punitive fiscal rhetoric around the budget. Fortunately, the Hockey Effect was temporary, with sales growing 0.6% in June.
Another key indicator, building approvals, showed a 1% rise (seasonally adjusted) in the June quarter from the March quarter — 46,980 against 46,484. For the year to June the total number of approvals leapt to 193,186, up around 20%, from 160,241 in 2012-13. That included a welcome uptick in public housing approvals in NSW, Victoria and Queensland in June. With so many homes approved and being built, the housing sector will continue to provide a significant contribution in the June quarter, even though approvals are now slowing.
The July jobs numbers out this morning were a mixed bag, with a fall in part-time employment almost perfectly offsetting a rise in full-time employment. There was a rise of 0.1% in the participation rate, which is always welcome, but that helped drive a rise in the unemployment rate of 0.3 points to 6.4%, and there was a fall in aggregate monthly hours worked of nearly 1%. The participation rate factor was particularly evident in Victoria, where a big rise in participation of half a per cent saw a rise in unemployment of 0.4 points to 7%, although in Queensland there was no rise in participation and employment simply fell. But this morning’s numbers also confirm a slowing jobs market in the June quarter, which saw total employment, seasonally adjusted, grow by just 20,600 jobs, while the March quarter saw nearly 90,000 jobs created.
It all points to a much softer June quarter after a strong start to the year, though we won’t know the final result until we see the GDP numbers in September.