ReadWrite-grogsgamut

First the obligatory, “less than analysists” expected sentence.

OK. Now onto the data.

Yep, the ABS in the midst of the quarterly economic nerd week, released the national accounts today. Growth was below trend. Even trend growth was below trend.

Where do we find ourselves? Well first let’s look at the quarterly growth picture:

In March I noted that “4 of the past 5 quarters have had growth below the 10 year average”. That stays the same by virtue of the September 2012 growth figure being revised up from 0.65% to 0.76%. Incidentally the March 2012 growth figure, which came out at 1.3% and which received a fair bit of derision, seems to have settled at growth of 1.24%.

So the past 18 months have been more below average than good. And this month’s figures were a decline in annual terms due to that nice March 2012 growth  no longer getting counted in the annual figures:

This quarter at least we saw a slight return to normal in terms of the GDP deflator. Unlike the past 3 quarters which has the implicit prices used to calculate the GDP declining in annual terms, this quarter shows the GDP deflator increasing by as still next to nothing 0.5%

If we go in for a closer look on a quarterly basis we see this:

Clearly inflation is not a problem at the moment.

So how does that flow through to the latest buzzword in economic reporting, Nominal GDP?

Well the is an improvement, but geez it is still a long long way below average:

As Wayne Swan lies in bed at night wondering of the surplus that might have been he must surely look at that period from March 2003 to Dec 2008 when nominal GDP growth averaged 7.9%.

Annual real GDP growth from March 2009 is around 25% less than it was from 2002-2000, but average nominal GDP growth has fallen by around 40%:

OK. Terms of trade, how’s the boom going?

First the long term picture:

There was a little, little increase in the March quarter. Let’s go in for a close up, which shows the boom as less of a bust than a slight falling off:

Is that a truer picture? Not sure to be honest.

OK. Onto productivity.

This quarter showed a slight slowing of growth in annual growth in both trend and seasonally adjusted terms. This wasn’t surprising because the March 2012 quarter had shown very strong growth of 1.9% in seasonally adjusted terms. In the March 2013 quarter productivity grew by only 0.4% in trend terms and not at all in seasonally adjusted terms.

Annual productivity growth in trend terms remains nicely above the 1997-2007 average, but no time to get complacent (or to suggest the unions and the Fair Work Act are killing the economy).

Indeed the 5 year rolling growth chart shows since 2009 there’s been a good turn around in the declining growth of productivity:

Further to the “unions are in charge and destroying everything” narrative, there are the labour costs figures.

Real unit non-farm labour costs fell in the March quarter by 1.5% in seasonally adjusted terms.

Long time readers would note that I have been of the view that the reason behind the increase in unit labour costs during 2010-2012 was off the back of the GFC, which saw labour costs plummet faster than they had been. My view has been that we’ll get back to the pre-GFC trend of declining real unit labour costs once both the GFC and the reaction washes out, and this does seem to be the case. In essence, let’s cut the bull about the Fair Work Act raising labour costs.

Heck let’s look at nominal unit labour costs, because they are what the RBA looks at to see if labour costs are putting a spur to inflation:

Yep, nominal unit labour costs fell by 0.6% in the past year.

The household savings ratio shows that we’re quite happy it seems to save around 10% of our income.

Finally, on a national level, let’s look at the break down of national income among employees and companies.

After a bit of a jump last quarter, the employee share of total factor income stayed flat this quarter:

The corporations profit share of total factor income rose 3.7% in seasonally adjusted terms, but in trend terms it was pretty flat:

The increase in seasonally adjusted term might be good for tax revenue as we head towards the Pre-election Fiscal Outlook – as to might the slight increase in nominal GDP growth.

Now to the states.

Oh Western Australia, we hardly knew you:

Look, despite the usual caveats about state final demand not being state domestic product, it’s clear the peak of the mining capex has had an impact on WA. That doesn’t mean it’s in recession, but it is certainly off the boil (especially when you look at its employment growth situation).

Let’s look at it in annual terms, to clear out a bit of the quarterly variations:

WA’s annual SFD growth is now only just above that of QLD and NSW. (And yes, Tasmania is in a recession, let’s not beat around the bush). But while NSW has been kind of at a plateau, QLD continues its downward path.

How does the WA picture look in historical terms?

As you can see the last time WA’s annual SFD growth was this low (outside of the GFC) was prior to the mining boom.

Of course the non-mining states are meant to pick up the slack. Over to you Victoria:

As you can see, in the past 25 years there’s only been 2 other periods where Victoria’s SFD growth is negative – the 1990s recession and the GFC.

That is not a pretty picture.

Tomorrow the labour force figures. I predict not much joy there either.

My Drum piece today looked at a few things about our economy and how it is going compared to the rest of the world, and also how we seem to be getting just a bit more confident.

This of course doesn’t mean we’re never had it so good or any such guff, but that given the high dollar and the continuing crapstorm happening in Europe and America;s sluggishness, we seem to be holding up ok.

Last week I showed a few graphs about our GDP growth compared to the USA, and someone asked how it has gone since we last were in a recession, so because I can’t turn down a request to do a graph here it is:

It serves to reinforce the message that avoiding the slump of the GFC was a big deal. Sure our mining boom increased our lead over the yanks, but what really put us in front was them falling off the GFC cliff, and even earlier their stumble during the Dotcom bubble bursting in 2000. You can see from 2003-2007 we do grow slightly more than does the USA, but the big difference occurs 2008-09.

Or to show that graphically, here’s the difference between our cumulative GDP growth since 1991 and the USA’s:

The boom (and their stumble from 2000 to 2007 did gives us a lead. But nothing improves your relative performance like  the other nation falling head first into a big pile of economic poo.

But hey that’s 20 years. How about 30 years? Let’s go back and see what the picture looks like if we include the big boom of the 1980s and our 1990s recession:

We both were hit by the early 1980s recessions, and again in the 1990s we were in the same boat. What you can also see in the 1990s recession while both nations slid a bit it was more about staying flat for a period than going right backwards. The GFC is a different fish altogether.

And again the spread:

OK look, I’m boring you here with all this short time stuff. Let’s go back to 1972. 40 years worth of context:

Now we’re really starting to se the big picture. Up till 2000 we were in lock step with the USA. They were hit by the Dotcom recession, we narrowly avoided it (because Costello sensibly let the budget go into deficit (though he kept it quiet when he did it), and then our mining boom began. Now by the end of 2007 we were looking pretty damn good. Our boom had put us nicely ahead – 10 percentage points – in effect it took from 2000 to the end of 2007 to put us 10 percentage points ahead of the USA in cumulative growth terms. But look where we are now. 

So all in all I think we can say, however it happened, and for whatever reason we did, we shouldn’t be bitching about missing out on the GFC. We should smile and get on with it.

One final thing. A lot is made of the “great moderation” that has occurred post the 1990 recession, and how we have avoided a recession. But we’re also avoided big booms of GDP growth as well. For example in the 1980s we had 8 quarters in a row where Australia's economy was growing by more than 4.5% per annum – and at one point it reached annual growth of 8.1%.

So is it better to have booms and busts or a long moderation?

Well here’s a comparison of the cumulative GDP growth in the 86 quarters since our last recession and the 86 quarter prior to that:

Steady as she goes, beats boom and bust all the way.

UPDATE:

And just because I’m a graph junky, here’s the same graph but looking at GDP per capita. Unfortunately the ABS only goes back to 1973 for GDP per capita so I’ve got the cumulative growth from then till 1994 to ensure we have 86 quarters each:

The moderation isn’t as stark – we’ve had a few more bumps since 1`991 on the per capita measure than we have on the total GDP growth. But still. At least we missed those God awful downward hits that we had in the twenty years from 1973.

My Drum piece today got a bit econ nerdy and talked about whether or not Victoria is in a recession on the basis of 2 consecutive quarter (or perhaps even 3) of negative growth of State Final Demand.

My points is that you can’t say it, but neither should we discount SFD as some sort of meaningless stat. When SFD starts going down, it’s a good time to start peeking around a bit and seeing what else is going wrong in the economy.

As a bit of a pointer, take this look at SFD of the states over the past 5 years:

I think it gives a pretty good representation of the GFC and the recoveries in all states.

Or maybe I just get distracted by all the pretty colours.

In the first draft of my article I was going to do a bit of a step back and look at the big picture of the national accounts. There wasn’t room, and also it was a bit tacked on, narrative-wise, so here are the graphs The Drum readers missed out on:

First the a comparison of how GDP has grown over the past 5 year compared to other nations. With the fourth quarter data of 2012 the past 5 years’ worth now contains only periods of the ALP Govt (but yes I acknowledge there is a fair bit of carry over in at least the first 6 months)

It’s pretty impressive, and amazingly shattering to anyone from the UK or Japan. Imagine living in an economy which is smaller than it was 5 years ago. And that’s in total. Forget about per capita.

Now let us compare that with how we went in the 5 years prior to Q1 2008:

Sure we’re leading but look us compared to everyone else. In 2003-2008 our growth was only 19% better than that achieved by the 2nd best country (UK). I. comparison, from 2008-2012, our growth was 115% better than the second best.

We have not only kept growing faster than these other countries, in the past 5 years we have increased our lead.

But I know what you’re thinking – the GFC is old news, how about since then? Well the ravages of the GFC began to ease in the second half of 2009. At that point even the UK and USA stopped having negative quarters of growth. So how have we gone in comparison to those countries during the “recovery” stage?

Well as the table below shows, the GFC pretty much stopped “directly” in the 2nd quarter of 2009.

	Q1-2008	Q2-2008	Q3-2008	Q4-2008	Q1-2009	Q2-2009	Q3-2009
Australia		0.3	0.7	-0.7	0.9	0.0	0.7
Canada		0.5	0.7	-1.1	-2.2	-0.9	0.4
Germany		-0.4	-0.4	-2.0	-4.1	0.2	0.8
Japan		-1.2	-1.1	-3.2	-4.0	1.7	0.0
United Kingdom		-0.9	-1.8	-2.1	-1.5	-0.2	0.4
United States		0.3	-0.9	-2.3	-1.3	-0.1	0.4
OECD - Total		-0.1	-0.7	-2.2	-2.3	0.2	0.6

After that the run of periods of negative growth stopped (for a while). So let;s see how each of those countries has done since Q3 2009:

What do you know, we’re still leading. Yes everyone is growing better than they are when you don’t include the GFC, but that really highlights just how vital it is to avoid the depths of the recessions. Growth coming out of them well be pretty similar for all – we’re not miles ahead of Canada for eg, but you can’t look at the past 5 years and pretend the GFC was just some blip that had no impact.

But I know what you’re thinking – sure anything looks good if you spread it over a few years, but what have you done for me lately?

Well here’s how all of those countries did in 2012:

Any way you slice it, our economy is not just outperforming the big economies of the west, it has been doing so for 5 years. You can thank China if you want, or the Government, or if you’re desperate you can say the past 5 years are all due to John Howard, but you cannot say we’re underperforming. Given how badly the USA and Japan have been (which together account for about 20% of our exports) it’s rather stunning how well we have done.

And for an added treat, just to make any Australians reading feel extra warm and fuzzy. Here’s the cumulative growth over the past 10 years:

Or to show just how stark the GFC was, here’s the graph in linear form showing the cumulative growth each year since 2003:

Someone was doing something right around 2008-09. But I guess we should bitch and moan about how the Govt blew the surplus…

I was going to do this last night, but I was side-tracked doing some other work, and also by the laughs going on down in Victoria.

So here is yesterday’s post today:

***

And so today the December 2012 National Accounts came out showing a nice (and reasonably in line with expectations) result of real GDP annual growth of 3.1% in seasonally adjusted terms. It came off the back of growth in the December quarter of 0.6%.

In trend terms the December quarter growth was 0.6%, but the annual figure was a touch lower than the seasonally adjusted figure, coming in at 2.9%

It’s always worth remembering that the figures are statistical measures, subject to confidence levels and adjustments as are all other such economic data.

If we look at how growth figures have been revised over the past few quarter we see a bit of variation:

	March 2012 Figures	June 2012 Figures	September 2012 Figures	December 2012 Figures
Growth: Sept 2011	.97%	1.13%	1.18%	1.18%
Growth: Dec 2011	.62%	.50%	.70%	.59%
Growth: Mar 2012	1.30%	1.38%	1.30%	1.22%
Growth: June 2012		.64%	.58%	.65%
Growth: Sept 2012			.47%	.65%

Back when the March 2012 figures were released showing 1.3% growth in that quarter, there was a fair bit of scepticism.  It was subsequently revised up to 1.38% in the June 2012 figures, then back to 1.3% in the September 2012 figures, and in the latest figures it is at 1.22%. Similarly the June 2012 quarter figures has been revised up then down.

This month there has been a pretty sizeable revision of the September 2012 figure – from 0.47% to 0.65%. However this hasn’t changed the year of year growth estimation of the September 2012 data because as we can see today the December 2012 and March 2012 figures were both revised down.

So in the September 2012 data annual growth was going at 3.1%, and the most recent figures still have the September 2011 to September 2012 growth at 3.1%.

So it’s probably not too sensible to to get too caught up in revisions of any one particular quarter, but if you want to argue the economy was doing better than people thought in the September quarter of last year, today’s figures give you cause to at least begin arguing that.

Anyhoo let’s look at some graphs.

First the quarterly growth:

As you can see 4 of the past 5 quarters have had growth below the 10 year average.

Not surprisingly this has meant that annual growth is now only just above the 10 year average. It’s still doing well – 3.1% is nothing to sneeze at – but the trend estimate really highlights the sense that the economy slowed down in the second half of last year. Also once the March 2012 quarter is left out of the annual growth figures (ie in the next lot of figures) then it’s likely we’ll see a drop. 

To keep around 3% annual growth the March 2013 figures will need to see growth of around 1.1%. I can’t see that happening – not unless the GDP deflator really goes down.

Which brings us to the next point  that while this is okish news, it’s not as good as it normally would be for the Treasurer and his desires for growth to lead to increased tax revenue.

Once again we had a situation where nominal GDP growth (ie growth in current dollars) was below real GDP growth (growth in volume terms – ie accounting for inflation).  Once again the GDP deflator was in the negative – the first time going back to 1959 (and I’d bet, well before that) that there have been 3 consecutive quarters of negative annual growth in the GDP deflator:

So forget inflation, in GDP terms were in deflation territory – and in a way that we have never encountered before (at least outside of the Great Depression). To get a grasp of how different things are now to what was occurring during the mining boom of the early-mid 2000s, compare the real GDP annual growth with the nominal growth:

As shown earlier, we are currently pretty much on the 10 year average of real GDP growth, but the 10 year average of nominal GDP growth is 6.7%, whereas at the moment we are bumping along at 2%.

Just imagine how fatter Wayne Swan’s tax revenue would be if he had 6.7% nominal GDP growth? He could lay in a hammock and watch the surplus come in. Alas the hammock days of being a treasurer are over for now.

He can’t even look to great joy from export prices, because the terms of trade fell again. Down 2.7% to 88.8:

It still looks nice and high compared to the late 1990s, but a close up of the past 5 years shows a fairly different picture:

Not really booming is it?

Now to everyone’s favourite measure – productivity.

It grew in the December quarter by 0.5% in trend terms and 0.7% in seasonally adjusted, making it 8 consecutive quarters of trend productivity growth, which is the first time that’s happened for 10 years.

In annual terms we’re at a healthy 3.5% seasonally adjusted and 2.9% in trend.

Next quarter will likely see drop in the seasonally adjusted annual growth because the March 2012 saw 1.9% growth in that quarter, so unless the next quarter matches that (unlikely) it will drop a bit, but it will remain positive.

We have also had now 4 consecutive quarters of productivity growth above the Dec 1997-Dec2007 average.  Surely cause for a bit of cheer. (Though I’m not sure why I’m telling you this because no doubt it was front page of The Oz and AFR)

On labour costs, “Real unit (non-farm) labour costs” did rise again in the seasonally adjusted measure, but it declined in trend terms.

There is always a bit of hoo-hah about labour costs rising – as though they can always keep falling forever. But as I’ve noted before, the GFC caused labour costs to dive, and the recent rises are now pretty much in line with the trend of where cost were expected to be given the trend of the 5 years prior to the GFC hitting:

When it comes to the RBA worrying about labour costs rising, it looks at the nominal rate, and here we see nominal growth is actually below real growth – because of the GDP deflator being negative.

So are we going to see the RBA complain about rising labour costs leading to inflation? Not any time soon. With annual nominal unit labour costs growing at 0.6%, the whole “wages breakout” myth takes another big hit. In fact critics of the Fair Work Act are now at the point where they pretty much have to abandon macroeconomic data and focus on either industry specific (which too be honest hasn’t helped them much) or the dodgy “anecdotes”. Given that has been their main source of “data” it at least won’t mean they have to change much of their research.

In the breakdown of where the money is going, the compensation to employees of total factor income rose slightly, meaning we have well and truly put the GFC hit to employees behind us, and the share is now back at long term (well at least past 20 year) levels:

The share going to private corporations profits has thus declined again and is now showing a fairly big turnaround to a 40 year trend:

OK now to the states. There’s been a fair bit of palaver about Victoria now being in “recession” because it has shown 2 consecutive quarters of negative growth in State Final Demand:

Now firstly (and as has been stated a little bit on Twitter by a few econ types), State Final Demand is not equal to Gross State Product. For example a lot of what Western Australia is “demanding” might actually be coming from Victoria. In such a circumstance it wouldn’t show up in Victoria’s SFD, but in WA’s even though it was being produced in Victoria.

Secondly we shouldn't give too much of a crap about whether or not a state or a nation is in technical recession because measures like 2 consecutive quarters of negative GDP growth are just a bullshit arbitrary designations of no real worth that no one really cares about if they want to be taken seriously outside of a talk-back radio show.

You want to know if you’re in a recession? How about looking at employment growth – that’s as good an indicator as GDP growth for the health of an economy.

But be that as it may. Clearly Victoria’s economy is not healthy; neither is South Australia's, and well Tasmania…  .

Quarterly SFD is also in my opinion a bit jumpy so I prefer looking at annual growth:

Again, Victoria not doing well. Recession? I’ll leave that up to those needing to sell newspapers.

Similarly Queensland is not coping with life as good as one might hope – and that is a bit more significant because you would expect its industries to be demanding production from other places. That it is not analogous to Gross State Product doesn’t mean it is not a good indicator of economic health. Just look at QLD’s annual SFD growth back to 1985 and you get a pretty good picture of when the state was doing well, and when it was not:

All in all the National Accounts tell us what we all knew – the economy is grew at trend through 2012, but 2012-13 looks to be slowing, but not in any horrific sense, – probably around 2.4%-2.6%.

Below trend but now worse than that, but certainly no better. Inflation next to nothing, and the budget certainly not going to be in surplus (not that there’s anything wrong with that). 

And so this wonderful week of economic data hit the peak today with the national accounts being released by the ABS (labour force and industrial disputes are out tomorrow).

The September quarter figures should in seasonally adjusted terms, Real GDP rose by 0.5%, for an annual rate of 3.1%. This was a fall from the year on year rate in the June quarter of 3.8%. Those sharp thinkers among you might recall that in September when the last figures were released the year on year growth was 3.7%. The ABS revised the last few quarter a bit:

	June Growth Figures	September Growth Figure
September 2011	1.128%	1.181%
December 2011	0.502%	0.695%
March 2012	1.376%	1.298%
June 2012	0.644%	0.578%

Back when the March 2012 figures initially came out there was a fair bit of hoo-ha suggesting the ABS had stuffed it all up because the March growth was 1.3% (or more specifically 1.2957%).

Tim Colebatch (who I generally think gets it right) for example wrote at the time:

THERE'S an old saying among economists: if a figure looks wrong, it usually is. Yesterday's estimate that GDP grew 1.3 per cent in the March quarter amid all the job cuts is a good example.

These figures strain credulity.

And he ended with:

Wayne Swan wants us to take pride in these figures. I would if I could believe them.

At the time I tweeted a pretty scathing assessment of his piece.

Well since then the March quarter growth figures have been revised. Last quarter they were revised up to 1.376%, and this month they were revised down to 1.298%, leaving them a whopping  0.001% different form the initial estimate.

I think we can believe them.

OK some graphs – here is the quarterly growth:

It doesn’t look all that wonderful to be honest. Take out the (very good) March figure and things are not looking that rosy. And the trend certainly gives you a sense of where things could be headed.

The annual growth figures say much the same:

Now one very interesting thing about the figures released today is the GDP deflator. This is essentially the inflation gauge used to determine the “real GDP” – which is nominal GDP growth minus inflation . The GDP deflator shows we have been experience deflation

To get a sense of how unusual this is look at the annual GDP deflator all the way back to 1960:

Things are pretty irregular at the moment.

What this means is that rather oddly nominal GDP growth is actually below real GDP growth:

This is not actually a good thing. Sure we love low inflation, but deflation? That ain’t a sign that things are healthy.

Similarly let’s compare GDP growth to GDP per capita growth. What you see is that during the GFC Real GDP (which ignores growth in population) grew more (or fell less) than did GDP per capita growth. After falling back to near average levels in 2011 once again it is increasing – a sign that the economy might be doing OK, but it is not really being felt across the nation.

The quarterly growth of 0.5% is being talked down as a bit of a disappointment. Personally I was relieved – I thought it could be less given how crappy things were in that September quarter. The Terms of Trade for example were really bad, falling 4.0% for a 13.7% fall in the past 12 months. For a country that loves making money from mining, that makes it hard to keep growing:

OK, now to productivity.

It increased in the September quarter by 0.7%, for an annual rate of 3.1% (seasonally adjusted). Needless to say, it’s along way from the 1% annual productivity growth level thrown around whenever any business leader wants to talk about the need for “flexibility”. Also don’t forget that the big drop in productivity during 2010 was due to the floods in QLD, where GDP fell but employment did not (because mines etc didn't sack staff, because they knew the mines would re-open once the water was cleared away).

But even if you ignore that we’re looking at a run of positive annual productivity growth not seen since around 2000. (But don’t worry, tomorrow the industrial disputes figures will come out and no doubt there’ll be a way to say how terrible is the Fair Work Act for the economy)

Now to labour costs. I’ll use non-farm just to be as fair as possible – because total real unit labour costs actually fell 0.7% this last quarter, whereas non-farm stayed flat:

In my Drum piece a couple week’s back looking at IR legislation I noted that real unit labour costs, while they had increased of late, were still pretty much in keeping with the trend decline of the last 6 years of the Howard Government and had only increased in the past year because they had declined so abnormally during the GFC. This quarter’s figures confirm this to be the case:

Similarly the nominal unit labour costs continue to be low – lower than the average from 2002-2007. So the RBA certainly won’t be worrying about labour costs when considering inflationary pressures:

A quick look at where the national income is going shows us now back to pre-GFC ratios:

And the Household Savings Ratio stayed much the same:

So that’s the big picture stuff. I’ll have a bit more of a look at the data tomorrow (time permitting) – examining the states etc.