Today (December 6, 2023), the Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, September 2023 – which shows that the Australian economy grew by just 0.2 per cent in the September-quarter 2023 and by 2.1 per cent over the 12 months. If we extend the September result out over the year then GDP will grow by 0.8 per cent, well below the rate required to keep unemployment from rising. GDP per capita fell by 0.5 per cent and Real net national disposable income fell by 0.6 per cent – a measure of how far material living standards declined. Households cut back further on consumption expenditure growth while at the same time saving less relative to their disposable income in the face of rising interest rates and temporary inflationary pressures. Temporary fiscal policy measures (to ease cost-of-living pressures) were the difference between poor growth and no growth at all.
The main features of the National Accounts release for the September-quarter 2023 were (seasonally adjusted):
- Real GDP increased by 0.2 per cent for the quarter (down from 0.4 per cent last quarter). The annual growth rate was 2.1 per cent but the annualised September-quarter rate would only be 0.8 per cent
- GDP per capita fell by 0.5 per cent for the quarter, the third consecutive quarter of contraction. Over the year, the measure was down 0.3 per cent – signalling declining average income.
- Australia’s Terms of Trade (seasonally adjusted) fell by 2.6 per cent and by 9 per cent over the 12 month period. It continues the large quarterly declines not seen since the September-quarter 2009.
- Real net national disposable income, which is a broader measure of change in national economic well-being, fell by 0.6 per cent for the quarter (second consecutive fall) but still rose by 0.9 per cent over the 12 months, which means that Australians are better off (on average) than they were at that point 12 months ago but worse off than they were in the March-quarter 2023.
- The Household saving ratio (from disposable income) fell to 1.1 per cent from 2.8 per cent. So the squeeze on household wealth is having an effect with continual declines in the ratio. A bad outcome
Overall growth picture – growth continues at much slower rate
The ABS – Media Release – said that:
Australian gross domestic product (GDP) rose 0.2 per cent (seasonally adjusted, chain volume measure) this quarter and by 2.1 per cent since September last year …
This was the eighth straight rise in quarterly GDP, but growth has slowed over 2023 … Government spending and capital investment were the main drivers of GDP growth this quarter …
The growth in government expenditure was driven by social benefits to households, including the Energy Bill Relief Fund rebates, and extra payments for childcare, aged care and pharmaceutical products …
The increase in gross fixed capital formation was driven by public corporations …
Household spending was flat …
The household saving to income ratio fell for the eighth straight quarter to 1.1 per cent, its lowest level since December quarter 2007.
The short story:
1. Non-government spending is very weak.
2. The small growth increase in the September-quarter was largely driven by government spending. Who says that fiscal policy is ineffective.
3. Households are being squeezed by the cost-of-living increases and the RBA rate hikes, and the latter, is in part, causing the former.
4. Households are back to wiping out their savings to maintain a declining growth in consumption expenditure.
The first graph shows the quarterly growth over the last five years.
To put this into historical context, the next graph shows the decade average annual real GDP growth rate since the 1960s (the horizontal red line is the average for the entire period (3.26 per cent) from the September-quarter 1960 to the September-quarter 2008).
The 2020-to-now average has been dominated by the pandemic.
But as the graph shows the period after the major health restrictions were lifted has generated lower growth than if we include the period when the restrictions were in place.
It is also obvious how far below historical trends the growth performance of the last 2 decades have been as the fiscal surplus obsession has intensified on both sides of politics.
Even with a massive household credit binge and a once-in-a-hundred-years mining boom that was pushed by stratospheric movements in our terms of trade, our real GDP growth has declined substantially below the long-term performance.
The 1960s was the last decade where government maintained true full employment.
Analysis of Expenditure Components
The following graph shows the quarterly percentage growth for the major expenditure components in real terms for June-quarter 2023 (grey bars) and the September-quarter 2023 (blue bars).
Points to note for the September-quarter:
1. Household Consumption expenditure rose by just 0.03 per cent (down from 0.10 per cent) – spending growth has now been flat since last September and the household saving is being rundown to support the current declining growth.
2. General government consumption expenditure rose by 1.12 per cent (up from 0.64 per cent).
3. Private investment expenditure growth rose by 1.17 per cent (down from 1.19 per cent).
4. Public investment rose by 0.7 per cent on the back of big state and local government infrastructure projects (down from 7.93 per cent).
5. Export expenditure fell by 0.68 per cent (down from 4.48 per cent). Imports growth was 2.06 per cent (ip from 1.81 per cent).
6. Real GDP rose by just 0.21 per cent (down from 0.44 per cent).
Contributions to growth
What components of expenditure added to and subtracted from the 0.4 per cent rise in real GDP growth in the September-quarter 2023?
The following bar graph shows the contributions to real GDP growth (in percentage points) for the main expenditure categories. It compares the September-quarter 2023 contributions (blue bars) with the previous quarter (gray bars).
In no order:
1. Household consumption expenditure added zeo points to the overall growth rate (down from 0.1 point).
2. Private investment expenditure added 0.2 points (steady).
3. Public consumption added 0.2 points this quarter (up from 0.1).
4. Public Investment added zero points this quarter (down from 0.4).
5. Overall, the government sector added 0.2 points to growth (down from 0.5).
6. Growth in inventories added 0.4 points (up from -1.2).
7. Net exports subtracted 0.6 points to growth (down from 0.8) with exports (-0.2) being complemented by the rise in imports (-0.4 points) – remember imports are a drain on expenditure.
The rise in inventories was driven by what the ABS said:
Change in inventories contributed 0.4 percentage points towards September’s overall growth following a detraction of 1.2 percentage points in the June quarter. Mining inventories rose $2.4 billion, reflecting the larger fall in exports than in production volumes.
Export prices for coal and LNG fell as global supplies increased. This resulted in a fall in mining profits (-6.5 per cent) and drove the 2.6 per cent fall in the terms of trade over the quarter.
A GDP per capita recession?
GDP per capita fell for the third consecutive quarter, which means that total output averaged out over the entire population contracted for the 9 months of 2023.
Some consider this to be a deepening recession although what the average actually means is questionable.
The following graph of real GDP per capita (which omits the pandemic restriction quarters between March-quarter 2020 and December-quarter 2021) tells the story.
Material living standards continue to fall in September-quarter
The ABS tell us that:
A broader measure of change in national economic well-being is Real net national disposable income. This measure adjusts the volume measure of GDP for the Terms of trade effect, Real net incomes from overseas and Consumption of fixed capital.
While real GDP growth (that is, total output produced in volume terms) rose by 0.2 per cent in the September-quarter, real net national disposable income growth fell by 0.6 per cent.
How do we explain that?
Answer: The terms of trade fell 2.6 per cent in the September-quarter and by 9 per cent for the 12 months to September.
The ABS noted that:
The terms of trade fell 2.6% as export prices (-1.4%) fell and import prices (+1.2%) rose. Export prices for coal and liquefied natural gas (LNG) declined with elevated levels of inventories in export markets curbing demand. Strong oil prices and the depreciation of the Australian dollar led to rises in import prices during the quarter.
Household saving ratio fell by 1.7 points to 1.1 per cent
The ABS noted that:
The household saving to income ratio declined from 2.8 to 1.1, the lowest level since December 2007. Household saving declined due to a strong rise in income payable (+6.3%), which experienced its highest growth through the year (+27.9%) since September quarter 1977. Income taxes drove the rise, in the absence of the Low and Middle Income Tax Offset which ceased over 2022-23. Interest on dwellings also contributed to the rise in income payable, as fixed rate mortgages continued to transition to higher variable rates.
So withdrawal of government assistance via the tax offset coupled with higher interest rates saw the household saving ratio decline sharply.
At this rate, households will be dissaving – that is, running down wealth stocks.
This is a finite process given the record levels of household debt.
The following graph shows the household saving ratio (% of disposable income) from the September-quarter 2000 to the current period. It shows the period leading up to the GFC, where the credit binge was in full swing and the saving ratio was negative to the rise during the GFC and then the most recent rise.
The current position is that households are being squeezed by a combination of rising living costs and interest rates and flat wages growth, which is driving a gap between income and expenditure.
If this trend continues, Australia will go back to the pre-GFC period when the household saving ratio was negative and consumption growth was sustained by increasing debt.
However, with household debt so high, it is likely that households will cut back consumption spending and the economy will head towards recession.
It will be a deliberate act of sabotage engineered by the RBA.
The next graph shows the household saving ratio (% of disposable income) from the September-quarter 1960 to the current period.
Back in the full employment days, when governments supported the economy and jobs with continuous fiscal deficits (mostly), households saved significant proportions of their income.
In the neoliberal period, as credit has been rammed down their throats, the saving rate dropped (to negative levels in the lead-up to the GFC).
Hopefully, households are paying off the record levels of debt they are now carrying and improving their financial viability.
The following table shows the impact of the neoliberal era on household saving. These patterns are replicated around the world and expose our economies to the threat of financial crises much more than in pre-neoliberal decades.
The result for the current decade (2020-) is the average from June 2020.
|Average Household Saving Ratio (% of disposable income)
|Since RBA hikes
Real GDP growth rose but hours worked fall – thus GDP per hour worked rises
Real GDP rose 0.2 points in the quarter, while working hours fell 0.6 per cent.
Which means that GDP per hour worked rose by 0.84 points for the quarter – that is, an increase in labour productivity.
The following graph presents quarterly growth rates in real GDP and hours worked using the National Accounts data for the last five years to the September-quarter 2023.
To see the above graph from a different perspective, the next graph shows the annual growth in GDP per hour worked (labour productivity) from the March-quarter 2008 quarter to the September-quarter 2023.
The horizontal red line is the average annual growth since March-quarter 2008 (0.82 per cent), which itself is an understated measure of the long-term trend growth of around 1.5 per cent per annum.
The relatively strong growth in labour productivity in 2012 and the mostly above average growth in 2013 and 2014 helps explain why employment growth was lagging given the real GDP growth. Growth in labour productivity means that for each output level less labour is required.
GDP per hours worked has now fallen for the last five quarters – a poor outcome.
The distribution of national income – wage share rises
The wage share in national income rose slightly to 52.5 per cent while the profit share fell to 29.5 per cent as labour compensation rose and the terms of trade fell sharply which affects corporate profits.
But as the following graphs show, this shift is minor in the face of the recent trends.
The first graph shows the wage share in national income while the second shows the profit share.
The declining share of wages historically is a product of neoliberalism and will ultimately have to be reversed if Australia is to enjoy sustainable rises in standards of living without record levels of household debt being relied on for consumption growth.
Remember that the National Accounts data is three months old – a rear-vision view – of what has passed and to use it to predict future trends is not straightforward.
The data tells us that after the initial rebound from the lockdowns, growth has now stalled at well below the trend rate.
If the government sector’s welfare measures (which will expire soon) were not in place, the Australian economy would have recorded zero growth in the September-quarter.
Household consumption expenditure growth is now flat and not driving growth at all.
Households are now saving less relative to their disposable income in an effort to maintain consumption growth in the face of rising interest rates and temporary inflationary pressures.
I expect growth to decline further and we will be left with rising unemployment and declining household wealth as a result of the RBA’s poor judgement.
That is enough for today!
(c) Copyright 2023 William Mitchell. All Rights Reserved.