The Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, September 2022 – Today (7 December 2022), it showed that the Australian economy expanded by 0.6% in the September 2022 quarter and 5.9% in the 12 months to September 2022. The growth was largely driven by continued growth in household spending (not yet succumbing to a cost-of-living squeeze exacerbated by rising interest rates). The contribution of private capital formation is modest. The sharp decline in the terms of trade suggests a negative contribution from net exports and a decline in real net national living standards. Compensation of employees (the wage measure in national accounts) rose by 3.2%, but this was mainly due to the impact of administrative decisions in the quarter (for example, minimum wage increases) rather than the result of market pressures.
The main features of the National Accounts for the September 2022 quarter are (seasonally adjusted):
- Real GDP rose 0.6% in the quarter (down from 0.9% in the previous quarter). Annual growth rate of 5.9%
- Australia’s terms of trade (seasonally adjusted) fell by 6.6% (down from +4.8% in the quarter and -0.3% in the 12-month period.
- Real net national disposable income, a broader measure of changes in national economic well-being, fell 2.5 per cent in the quarter but rose 3.2 per cent over the past 12 months, meaning Australians are (on average) better off than they are At that point 12 months ago, but worse than 3 months ago.
- The household saving rate (from disposable income) fell from 8.3% to 6.9%.
Overall growth profile – growth continues to slow
ABS—— media release – Say:
The September quarter was the fourth consecutive quarter of economic growth following a contraction in the September 2021 quarter, impacted by the outbreak of the COVID-19 Delta…
Household spending rose 1.1 percent in the quarter, contributing 0.6 percentage points to GDP. Growth was driven by spending on hotels, cafes and restaurants (up 5.5 per cent), transport services (up 13.9 per cent) and vehicle purchases (up 10.1 per cent). …
As COVID-19 travel restrictions continue to ease, households continue to increase spending on domestic and international travel…
The household savings-to-income ratio fell for the fourth consecutive quarter (from 8.3 percent to 6.9 percent) as household spending outpaced household income growth.…
Net trade knocked 0.2 percentage points off GDP, with a 2.7% rise in exports more than offset by a 3.9% rise in imports…
The first graph shows quarterly growth over the past five years.
To put this in historical context, the graph below shows the ten-year average annual real GDP growth rate since the 1960s (the horizontal red line is the average (3.3%) for the entire period from Q2 1960 to 2022 ).
The 2020-to-date average has been impacted by the pandemic.
But it is also evident that growth performance over the past two decades has been well below historical trends as the obsession with fiscal surpluses intensified on both sides of politics.
Even with our terms-of-trade gigantic household credit boom and once-in-a-century mining boom, our real GDP growth has been well below long-term performance.
The 1960s were the last decade in which the government maintained true full employment.
Analysis of Expenditure Composition – Consumption and Exports
The chart below shows real quarterly percentage growth for the main spending components in the June 2022 quarter (gray bars) and the September 2022 quarter (blue bars).
Notes for the September quarter:
1. Household consumption expenditure increased by 1.1% (down from 2.1%).
2. General government consumption expenditure increased 0.1% (previously -0.65%), but is up 3.3% over the past 12 months.
3. Private investment spending rose 0.8% (from -0.9%). Over the past year, it has fallen 0.3%.
4. Public investment fell by 3.35% (down from 5.3%).
5. Export spending rose 2.6% (down from 5.3%). Import growth was only 3.93% (up from 1.4%) – a lot of international travel.
contribution to growth
What spending components were added and subtracted from the 0.8% increase in real GDP in the September 2022 quarter?
The bar chart below shows the contribution (expressed as a percentage) of the major spending categories to real GDP growth. It compares the contribution from the September 2022 quarter (blue bar) to the contribution from the December 2021 quarter (gray bar).
no order:
1. Household consumption expenditures increased by 0.6 percentage points (down from 1.1 percentage points) at an overall rate of 0.6%.
2. Public investment minus 0.2 points (after increasing by 0.3 points in the previous quarter).
3. Inventory growth increased by 0.2 percentage points (down 1 percentage point in the previous quarter).
4. Private investment spending rose by 0.1 points (down 0.2 points in the previous quarter).
5. Public consumption did not increase this quarter after falling by 0.1 points in the previous quarter. Overall, the government sector cut growth by 0.2 percentage points (after increasing by 0.2 percentage points in the previous quarter).
5. Net exports reduced growth by 0.2 percentage points, with exports (0.6 percentage points) offset by imports (-0.8 percentage points) — remember, imports eat up spending.
Material living standards fall in September quarter
ABS tells us:
A broader measure of changes in national economic well-being is real net national disposable income. The measure adjusts the quantitative measure of GDP for terms-of-trade effects, real net income from abroad, and consumption of fixed capital.
While real GDP growth (ie gross output measured in volume terms) increased by 0.6% in the September quarter, net real national disposable income growth fell by 2.5%.
How do we explain it?
A: The terms of trade fell by 6.6% in the quarter, which according to the Australian Bureau of Statistics was “the largest drop since the June 2009 quarter as import prices rose and export prices fell.”
Export prices fell as demand for iron ore and other minerals fell.
The chart below shows the evolution of the quarterly growth rates for the two series since the September 2006 quarter.
The household savings rate fell 1.4 percentage points to 6.9%
The ABS states:
The household savings rate continued to decline during the quarter, approaching pre-COVID-19 levels. Higher levels of housing spending and higher interest payables reduced household savings compared to the June quarter…
Therefore, households maintain the growth in consumption spending by lowering the saving rate.
The graph below shows the household saving rate (as a percentage of disposable income) from the September 2000 quarter to the current period. It shows the period before the GFC, when the credit frenzy was in full swing and savings rates were negative compared to the rise during the GFC and the recent rise.
As things stand, households are being squeezed by rising costs of living and interest rates, as well as stagnant wage growth, which is widening the gap between income and spending.
While savings rates may still look high, this behavior is not as “historic” as we might think if we take a longer-term perspective.
The chart below shows the household savings rate (as a percent of disposable income) from the September 1960 quarter to the current period.
Back in the days of full employment, when governments supported the economy and employment with persistent fiscal deficits (mostly), households saved a significant portion of their income.
During the neoliberal period, savings rates fell (to negative territory on the eve of the global financial crisis) as credit kept pouring down their throats.
The hope is that households will be able to repay the record levels of debt they are now carrying and improve their financial viability.
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The table below shows the impact of the neoliberal era on household saving. These patterns are replicated around the world, making our economy more vulnerable to financial crises than it was in the pre-neoliberal decades.
Results for the current decade (2020-) are March 2020 averages.
The chart below shows the quarterly growth rates of real GDP and hours worked using the past five years of national accounts data through the September 2021 quarter.
Looking at the above figure from a different angle, the figure below shows yearly Growth in GDP (labor productivity) per hour worked from Q2 2008 to Q2 2022. The horizontal red line is the average annual growth rate (1.1%) since Q2 2008, which itself is an underestimated indicator of long-term trend growth of about 1.5% per year.
Relatively strong growth in labor productivity in 2012 and mostly above-average growth in 2013 and 2014 help explain why employment growth has lagged real GDP growth. Increased labor productivity means that each level of output requires less labor.
The data showed that real output rose 0.6%, while hours worked rose 0.4% in the September quarter.
The result was that GDP per hour worked rose 0.6% in the quarter, but fell 0.6% over the past 12 months.
The wage share of national income rose by 1.4 percentage points to 50.2%, while the profit share fell by 0.9 percentage points, mainly due to lower terms of trade (mining profits fell due to lower commodity prices).
But as the chart below shows, the shift is insignificant in the face of recent trends.
The first graph shows the wage share in national income and the second graph shows the profit share.
Falling wage shares have historically been a neoliberal artifact, a trend that must eventually be reversed if Australia is to enjoy sustainable improvements in living standards without relying on record levels of household debt for consumption growth.
Remember that national accounts data is three months old – a backward view of the past – and using it to predict future trends is not straightforward.
The data tell us that after an initial rebound from the lockdown, growth in the September quarter continued to be moderate and was driven by domestic demand – mainly household consumption spending.
Material living standards have generally declined over the past three months as booming terms of trade have reversed.
To sustain consumption growth in the face of rising interest rates and temporary inflationary pressures, households are now saving less relative to their disposable income.
So far, the data offer little indication that RBA rate hikes are dampening demand. The only sign was “lower home sales and auction clearance rates” in the September quarter.
(c) Copyright 2022 William Mitchell. all rights reserved.
