With interest rates now at 1% and calls for fiscal stimulus, what does the Australian economy really look like? The current picture is partly historical, but it shows an economy where services sectors and iron ore exports are performing well, while construction, manufacturing and household incomes are being hammered. Here’s a snapshot of the economy using key indicators (all trend basis unless otherwise noted).

Construction

  • The value of all building work done in Australia was down 0.9% in March quarter and down 1.2% in year to March. The value of residential building work done was down 2.4% in the quarter and 2.6% in the year.
  • Dwelling approvals — which indicate what’s coming down the residential building pipeline — were down 0.5% in May and down 20.9% in the year to May. Approvals for apartments and attached dwellings were down 26% in the year.
  • Infrastructure: engineering work done for the public sector was down 5.9% in March quarter and down 15% in the year to March. Engineering construction for the private sector was down 3.2% in March quarter and 11.2% in the year to March.

Status: pretty much all bad, with apartment construction the worst, and the surge of infrastructure spending in NSW and Victoria is over.

Lending and spending

  • New capital expenditure was down 0.6% in March quarter and down 0.8% in year to March.
  • Total lending to households was flat in April and down 7% in the year to April (seasonally adjusted). But commercial finance was up 11.5% in April.
  • May retail turnover was up 0.1%, and up 0.3% in three months to May (seasonally adjusted). Retailers in New South Wales continue to struggle, with flat turnover in May after a big fall in April.
  • Data from the Federal Chamber of Automotive Industries shows new car sales were down 9.6% in the year to June.
  • House prices were down 0.2% nationally in June (according to figures from CoreLogic) and down 8% in the year to June, but up 0.1% and 0.2% in Sydney and Melbourne respectively. Those cities were down 9.9 per cent and 9.2 per cent on an annual basis.

Status: business lending remains good but banks have cut back on lending to households and households have closed their wallets, especially for major purchases.

Employment

  • Unemployment is 5.1% in trend terms and employment growth was a strong 2.7% in the year to May, with record participation of 65.9%. Annual employment growth in Victoria was strongest at 3.9%; it was 3.6% in NSW and 1.9% in Queensland.
    • Employment in the biggest sector, health and social care, was up 5,700 in May quarter and 15,300 jobs in the year to May
    • Education employment was up 11,800 in the quarter and 46,800 in the year.
    • Professional services employment was up 23,300 and 92,100.
    • Retail employment was up 11,400 and 13,200.
    • Construction was up 8,600 in the quarter but down 15,400 in the year.
    • Manufacturing employment was down 33,300 in the quarter and 101,400 in the year. Manufacturing has now been overtaken by another services category, accommodation and food services, in size of employment. In June, AIGroup’s Performance of Manufacturing Index fell 3.3 points to 49.4%, which suggests manufacturing contraction.
  • Average compensation per employee grew 0.4% in March quarter and 1.5% in year to March; Wage Price Index growth was 0.6% in March quarter and 2.3% in year to March.

Status: Jobs growth is strong, especially in Victoria and NSW, but confined to the services part of the economy and, as everyone knows, not translating into wages growth. Manufacturing is in real trouble.

National accounts

  • March quarter seasonally adjusted GDP growth was 0.4%, and totalled 1.8% in the year to March.
  • GDP per capita fell 0.1% in the March quarter and grew just 0.1% in the year to March.
  • Household final consumption growth was 0.3% in March quarter and 1.8% in the year to March.
  • Gross company profits grew 2% in March quarter and 8.8% in year to March.
  • Australia’s trade surplus was $6.089 billion in May. The value of our mineral exports grew by 13% in the month of May alone.
  • Consumer price index was 0% in March quarter, 1.3% in year to March
  • Gross value added per hour worked market sector (labour productivity) fell 0.3% in March quarter and is down 0.5% in year to March.

Status: life is good for mining companies and the governments that enjoy tax and royalty revenue from them. For everyone else, good luck. The economy is flat as a tack and productivity has slumped.

Peter Fray

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