Today (2 March 2022), the Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Products, December 2021 – This shows that the Australian economy reversed its contraction in the September 2021 quarter and posted an annual growth rate of 4.2%. The Covid-19 lockdowns and restrictions caused the economy to contract, and the abandonment of those lockdowns and restrictions allowed the economy to return to growth. Growth was driven by strong growth in household consumption spending as public financial support fell and private investment spending receded. The change in terms of trade was negative, reflecting higher import prices as supply constraints persisted and demand rose. Overall, it’s a good result, but the next quarter will be less strong (flooding, etc.).
Key features of the December 2021 quarter National Accounts release are (seasonally adjusted):
- Real GDP grew 3.2% in the quarter. Annual growth rate of 4.2%
- Australia’s terms of trade (seasonally adjusted) fell by 5.1% in the quarter (significantly lower than in previous quarters) but rose by 10.2% over the 12-month period. This was the biggest drop since the June 2009 quarter, as import prices (energy etc.) rose.
- Real national disposable income (a broader measure of changes in national economic well-being) rose 1.7% in the quarter and 3.7% over the past 12 months, meaning Australians are (on average) better off than before12 At that time a month ago.
- The household savings rate (from disposable income) fell to 13.6% from 19.8%, but was still higher than the pre-pandemic level of 11.8%.
ABS released this new feature – Australian economy: 12 things you need to know about the December 2021 quarter – For those with limited time, this is a concise and useful summary.
Overall Growth Chart – Winter Lockdown Ends, Growth Returns
ABS—— media release –Say:
Australia’s gross domestic product (GDP) grew by a seasonally adjusted quarter-on-quarter of 3.4% in the December 2021 quarter…
Private demand contributed 3.0 percentage points to GDP, and household final consumption expenditure grew by 6.3 percent. Household spending on goods and services…
Domestic demand drove growth this quarter, with high levels of household spending, especially in states emerging from COVID-19 lockdowns…
Net trade reduced GDP by 0.2 percentage points this quarter…
Household savings fell due to higher household spending coupled with lower household income. Gross household disposable income fell 0.5% as the government reduced support for households and unincorporated businesses impacted by COVID-19.
The first graph shows quarterly growth over the past five years.
To put this in a historical context, the graph below shows the ten-year average real GDP growth rate since the 1960s (horizontal red line is the average for the entire period from the March quarter of 1960 to the December quarter (3.3% 2021) .
The 2020-to-date average is clearly the average for the first 8 quarters of the decade, and has been dominated by the pandemic.
It is clear that the growth performance over the past 20 years has been well below the historical trend as the obsession with fiscal surpluses on both sides of the political spectrum has intensified.
Even with a massive household credit boom fueled by sharp changes in our terms of trade and a once-in-a-century mining boom, our real GDP growth has been well below long-term performance.
The 1960s were the last decade to pursue and maintain true full employment.
Expense Composition Analysis
The chart below shows the actual quarterly percentage growth of key spend components for the September 2021 quarter (grey bars) and December 2021 quarters (blue bars).
Precautions:
1. Household consumption expenditure rose 6.3% in the December quarter. It surpassed pre-pandemic levels for the first time in the December 2022 quarter.
2. General government consumption expenditure was flat in the December quarter, but rose 5.1% in the 12-month period. Financial support is now waning, but with Australia currently suffering from major floods, federal spending will have to increase in the third quarter of 2022.
3. Growth in private investment spending fell 1.4% in the quarter but rose 7.4% year over year.
4. Public investment fell 2.2% in the quarter due to some very large state-level infrastructure projects, but rose 5.4% for the year.
5. Export spending fell 1.5% in the quarter and 2.6% in the 12 months. Imports fell again, down 0.9% in the quarter but still up 1% for the year.
contribution to growth
Real GDP growth of 3.4% in December 2022 What spending components are added and subtracted?
The following bar chart shows the contribution (in percentage points) of major spending categories to real GDP growth. It compares the December 2021 quarter’s contribution (blue bars) to the September 2021 quarter (grey bars).
Unordered:
1. Household consumption expenditure increased by 3.2 percentage points in the overall growth rate of 3.4%.
2. Public investment dragged down growth by 0.1 percentage points.
3. Inventory growth contributed 0.9 percentage points to growth as companies built up previously depleted inventory levels.
4. Private investment spending dragged down growth by 0.3 percentage points—the second straight monthly slowdown.
5. Financial support is withdrawn and public consumption does not contribute. Overall, the government sector dragged growth by 0.1 percentage points.
5. Net exports reduced growth by 0.1 percentage points, with exports falling (drag of -0.1 percentage points) and imports at work (0.2 percentage points) (remember, imports consume spending).
Material living standards improved in December 2021 quarter
ABS tells us:
A broader measure of changes in national economic welfare is real net national disposable income. The indicator adjusts the measure of GDP for terms of trade effects, real net income abroad, and consumption of fixed capital.
While real GDP growth (i.e. total output in volume terms) rose by 3.4% in the December 2021 quarter, real net disposable national income growth rose by 1.7%.
How do we explain it?
Mainly because while GDP growth was positive, the terms of trade fell (as import prices rose) and household disposable income fell by 0.5% due to less government support payments after the lockdown ended.
The chart below shows the evolution of quarterly growth rates for the two series since the March 2006 quarter.
The household savings rate fell 6.2 percentage points to 13.6%
A drop in total disposable income due to lower government support spending and the opening of consumption opportunities due to the easing of widespread restrictions in NSW, ACT and Victoria meant the savings rate fell back to 13.6 per cent.
The graph below shows the household savings rate (as a percentage of disposable income) from the March 2000 quarter to the current period. It shows the period leading up to the GFC, when the credit frenzy was in full swing and the savings rate was negative for both the rise during the GFC and the recent rise.
While savings rates still seem to be high, the behavior is not as “historic” as we might think if we take a long-term view.
The chart below shows the household savings rate (as a percentage of disposable income) from the March 1960 quarter to the current period.
Back in the era of full employment, when governments supported the economy and employment with persistent fiscal deficits (for the most part), households saved a significant portion of their income.
During the neoliberal era, savings rates fell (to negative levels on the eve of the global financial crisis) as credit was stifled.
It is hoped that households will be able to repay the record levels of debt they are now carrying and improve their financial viability.
The table below shows the impact of the neoliberal era on household savings. These patterns are replicated around the world, making our economies more vulnerable to financial crises.
Results for the current decade (2020-) are March 2020 averages.
| ten years | Average household savings rate (% of disposable income) |
| 1960s | 14.4 |
| 1970s | 16.2 |
| 1980s | 12.0 |
| 1990s | 5.1 |
| 2000s | 1.4 |
| 2010s | 6.4 |
| 2020- | 15.8 |
Both real GDP growth and hours worked have improved
The chart below shows quarterly growth in real GDP and hours worked using national accounts data for the past five years through the December 2021 quarter.
The data showed that both output and hours worked rose in the December 2021 quarter.
To see the image above from a different angle, the image below shows yearly GDP growth per hour worked (labor productivity) from the March 2008 quarter to the December 2021 quarter. The horizontal red line is the average annual growth rate since the March 2008 quarter (1.1%), which is itself a long-term trend of about 1.5% annual growth by an undervalued measure.
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 less labor is required for each output level.
As output grew faster than hours worked, overall productivity increased.
National Income Distribution – Slight increase in wage share
The share of wages in national income rose by 0.2 percentage points to 50.3%, while the share of profits fell by 0.3 percentage points. Lower terms of trade mean a reduction in the overall share of the domestic sector.
The first graph shows the wage share in national income, while the second graph shows the profit share.
The decline in the wage share has historically been a product of neoliberalism and must ultimately be reversed if Australia is to enjoy sustainable increases in living standards without relying on record levels of household debt to fuel consumption growth.
Changes in final demand at the state/territory level
The table below (taken from ABS – thank you) shows final demand trends by state for the December 2021 quarter.
The three lockdown states/territories – NSW, Victoria and the ACT – have all rebounded as restrictions are eased.
in conclusion
Remember that National Accounts data is three months old – a hindsight view – has passed and using it to predict future trends is not straightforward.
The data tells us that the economy rebounded after lockdowns ended and restrictions were eased.
I wrote last quarter that I expected relatively strong results for the December quarter, and the data has confirmed that expectation.
Growth was driven by strong growth in household consumption spending as public financial support fell and private investment spending receded.
The change in terms of trade was negative, reflecting higher import prices as supply constraints persisted and demand rose.
Overall, it’s a good result, but the next quarter will be less strong (flooding, etc.).
Enough for today!
(c) Copyright 2021 William Mitchell. all rights reserved.
