The drip of bad economic data has been fairly steady of late, but yesterday it briefly turned into a torrent, enough to suggest that the Great Morrison Stagnation could be becoming something even worse.
Where to start? Australian Industry Group’s Performance of Manufacturing Index fell sharply for November, “driven by contraction in employment and new orders and sales and production were barely steady”.
AIGroup wants fiscal stimulus, stat, saying “the stimulus from interest rate reductions and the income tax cuts has not so far flowed through to consumer and business spending”.
The ANZ job ads series also emerged, showing a 1.7% fall in November and a 12.6% decline in the year to November.
Then it was the ABS’ turn. Dwelling approvals were down — yet again. The first sentence of the statistics bureau’s press release was “the number of dwellings approved fell 0.8% in October 2019, in trend terms, and has fallen for 23 months”.
Everything fell — houses, apartments, non-residential, even renovations. Total dwelling approvals are down nearly a quarter over the year to October, seasonally adjusted. It’s not clear if the bottom is in sight yet — dwelling approvals are a forward indicator of construction yet to commence.
Next: business indicators for the September quarter. That showed retail sales volumes down 1.6%, the biggest fall ever. Wholesale sales volumes were down for a second quarter. Inventories down 0.4%. Profits — which have been performing relatively well — down 0.8% seasonally adjusted. None of those will help an already insipid September quarter GDP number tomorrow.
The only upside for the quarter was, as we know, that strong iron ore prices have driven a mining investment boomlet, with mineral exploration spending up around 5%, much of it in Western Australia.
The Reserve Bank — which has so far persisted with its “gentle turning point” rhetoric — indicated last week that it is reluctant to further cut interest rates until it has a good handle on what the most recent round of cuts has delivered. That’s left little expectation there’ll be any movement at today’s meeting. But the spate of bad data yesterday will encourage economists and the commentariat to further heights of speculation about a rate cut at the Bank’s first meeting of 2020, in early February, especially if tomorrow’s GDP result suggests the “turning point” was for the worse, not the better.
But whatever the headlines about GDP and rate cuts, the ABS also yesterday revealed the extent of a more fundamental problem: Australia’s productivity is not merely not growing, it’s going backwards.
In 2018-19, multifactor productivity (MFP) in the market sector of the economy fell for the first time since 2010-11. And labour productivity (LP) fell for the first time since the ABS began collecting the relevant data when Paul Keating was prime minister.
Part of that fall can be put down to a strongly growing labour market in a tepid, low-demand economy — more people are in work, but overall output hasn’t grown to reflect that because households aren’t spending. The drought is also playing a role — it has smashed agricultural productivity. But there’s no gainsaying the trend of recent years of declines in both MFP and LP.
Labour productivity, which boomed under the Gillard government, has been declining since the Coalition came to power and has now, finally, gone negative. If this isn’t a productivity crisis, then it’ll do nicely until a real one arrives. And no interest rate cut or fiscal stimulus will fix it.
Meanwhile in Canberra, the government is obsessed with “union thugs” (whilst calling, hilariously, for “cooperative workplaces) and a budget surplus that can be measured not just in net inflows to Treasury but higher unemployment, lower growth and wages growth barely above inflation.
If the stagnation deepens into something worse, at least the culprits will be clear.
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