So the new fashion in economic reporting is “GDP per capita recession”, which is everywhere in the wake of yesterday’s national accounts. Even conservative economist Judith Sloan is using it. In the December quarter, GDP per person fell by 0.1% in September and 0.2% in December. That is, the economy didn’t grow fast enough to match our increase in population. It’s the first time two consecutive quarters have recorded negative growth since 2006.
Well, we’re not joining in the pearl-clutching.
It’s important to remember that those figures for the September and December 2018 quarters will be revised over and over into the future. And that’s where the “GDP per capita” chorus might be caught out. Back in December 2016, everyone was warning about recession after September quarter GDP that year contracted by a surprise 0.5%. It was the “worst result since the depths of the 2008 crisis,” said the Financial Review. But two and a bit years on, things look very different. Yesterday’s national accounts show that that 2016 fall of 0.5% has been replaced by a reading of zero growth. Still bad, sure, but nowhere near the big fall first reported, and certainly not the worst result since the financial crisis.
Indeed, that AFR claim itself needs a caveat: there was a GDP fall of what was initially reported as 1.2% for the March 2011 quarter (remember Tropical Cyclone Yasi, the Brisbane floods etc). That has since been revised repeatedly downward to a fall of 0.3% — a very different result.
Now, yes, both commentators and politicians have to respond to the initial figures provided by the ABS and can’t wait another three months for the first revisions. But before using words like “recession” — which shouldn’t be used without very good reason — commentators and politicians should acknowledge that their claims come with a significant asterisk.
And how useful is GDP per capita as an indicator anyway? It’s one of those measures that sounds meaningful but unless you’re into international league tables, it doesn’t mean much at all. Despite the apparent individual focus, it certainly doesn’t tell you anything much about your household living standard — no one sends you a cheque each quarter saying “here’s your dividend from the GDP”. And it doesn’t tell you anything about how productive you are (there are other measures, like GDP per hour worked, for that) and it includes kids, retirees, the ill, tourists — a whole range of people not even in the workforce.
The reason it will resonate, though, is because so many people, especially if they work in the private sector, do feel like they’re going backwards, because their pay hasn’t risen ahead of inflation for several years. It’s even declined in some industries. But that’s the separate and important story of wage stagnation. It’d be great if the media and politicians focused more on that rather than distractions like GDP per capita. Worse, throwing around “recession” unnecessarily has negative impacts on consumers. Talking about a recession can help bring one on or perpetuate one — whether with the words “GDP per capita” ahead of it or not.
14 thoughts on “‘GDP per capita recession’? Give us a break.”
Marcus Hicks
March 7, 2019 at 1:30 pmPoor Bernard. Too scared to admit that his beloved Librorts Party have well & truly tanked the economy-in spite of efforts by the senate to prevent the very worst elements of the 2014 budget from getting through. Face facts, Bernard, your beloved Cormmanator & Fraudenberg have lost their fake moniker of “best economic managers”, & will almost certainly be heading over to the Opposition Benches……at best.
Decorum
March 7, 2019 at 1:42 pmIs there a sort of Theorem of the Second Best for news stories, though? That is, given that the Coalition puts out so much misinformation and so many lies about what it’s ‘achieving’ on various policy fronts (achieving Paris in a canter etc.) can it be the case that adding more distortions is actually welfare improving? I think so and I think if the Coalition gets a lashing over this GDPPC recession, well, so much the better.
thelorikeet
March 7, 2019 at 2:33 pm“how useful is GDP per capita as an indicator anyway?”
About as useful as any other ill-considered, made up bs economic indicator (that’s most of them)?
As Galbraith once said, economics is extremely useful as a form of employment for economists.
AR
March 8, 2019 at 1:12 amAnd make astrology seem credible.
Desmond Graham
March 7, 2019 at 3:21 pmAh ! has any one explained to an economist what F….. -negative growth – means in 1 word.
I would say it is a – foxymoron
Latte Sipping Bogan
March 7, 2019 at 4:01 pmWhat was the point of this article? What makes GDP per capita any less a relevant statistic than any other of the numbers economists use? See Greg Jericho’s article in the Guardian for a not so crappy take. The point is the economy is in a parlous state. Neoliberal economists and their fellow travellers should own it. The rest of us just have to live with it until 1980s economic orthodoxy is overturned.
Decorum
March 7, 2019 at 7:40 pmConsider an economy of 1m people all making $70,000 p.a. Elsewhere in the world are 1m people each making $20,000 p.a. The latter group now migrate to join the first lot and now earn $30,000 each while the previous incumbents make $90,000 each. Per capita income in this economy is now $60,000 – a massive fall – but everyone is better off.
No, this does not describe the Australian situation: I agree that the most recent data are an indictment of the Coalition and its haphazard and scattershot economic policies. The simple point is, though, that Bernard is right that per capita income really is not necessarily, in general, a reliable measure of anything much that is useful.
Julian Robinson
March 7, 2019 at 6:21 pmPer capita GDP may not be a perfect indicator of wellbeing, but it is a lot better than plain vanilla ‘GDP’ used by this and other governments without reference to the growth in population that caused it.
You really should be picking on the stupidity of the government and others using vanilla population inflated GDP to prove their economic success, not running down a better measure which speaks otherwise.
Dog's Breakfast
March 7, 2019 at 7:16 pmThanks Julian. No need for me to weigh in other than give my support to tour’s and al other comments.
We have to get over this idea that GDP is a good measures of anything at all, but if growth is only being propped up by population increase then what we are experiencing is not growth at all.
Statistics, lies and articles supporting the lies.
Julian Robinson
March 7, 2019 at 8:09 pmYes … “lies and articles supporting lies” exactly. We need a better measure all round and recent attempts at ‘happiness index’ type measures are a start.
AR
March 8, 2019 at 1:16 amIt should not be forgotten that more traffic accidents, floods & bushfores produce extra economic activity and thus increase the GDP.
Wot’s the definition of waste? A bus of economists going over a cliff with some spare seats.
old greybearded one
March 7, 2019 at 6:43 pmWell Bernard the reason they feel like they are going backwards is because they bloody well are. Even blokes like me who work for the government. My pay has been pegged at 2.5% for 15 bloody years. That disappears in the health fund and insurance premium increases. I work longer hours than ever before. I also recommend you do your own shopping and see what else is going up, because the price of many necessities is rising beyond 2%. The fact is the economy is doing well for the top end of town. However the drought has yet to impact to the full. Watch bread prices rise as the impact of no harvest in NSW hits. Forget ABARE as well. I was a teenager the last time they got anything right and I am over 60.
Chilly Winds
March 7, 2019 at 6:49 pmBernard, FFS. You haven’t drawn any causal connection between GDP per capita and wage stagnation. People’s not spending as much as they were or would like to is one of the causes of the decline in GDP per capita; it’s not a ‘separate story’. GDP per capita is more meaningful than the absolute GDP figure which is just a measure of all our transactions rather than our ‘products’; it shows that pumping the country full of migrants and credit has quite quickly diminishing returns. Imagine our economy without massive, rapid population growth and reduction in our nearly world-highest household debt; these things make the Australian economy essentially a bubble.
[email protected]
March 10, 2019 at 4:53 pmI’m not one to avoid the facts just to remain ‘positive’, but I’ve yet to learn any detail of the declining percentage of ‘GDP per capita’. Why? Has the population increased, are people spending less, are we making less? And then of course, this is just an average. I have no idea what 0.1-0.2 per cent actually really means. I’m not even sure other publications do either, but can’t actually acknowledge that for fear of sounding silly.