The latest news from the Australian Bureau of Statistics – Australian National Accounts: National Income, Expenditure and Products, March 2022 – Today (1 June 2022), this shows that the Australian economy grew by 0.8% in the third quarter of 2022 and by 3.3% in the 12 months to March 2022 – a decline in growth rates. Nominal GDP grew by 10.2% for the year, and the change in the GDP price index (a measure of inflation) was 8.2%. The data tells us that after an initial rebound from the lockdown, growth slowed in the third quarter and was driven by domestic demand – household consumption, government spending and the buildup of inventories. Despite booming terms of trade, the external sector undermined growth. Productivity growth is strong, but watch for a drop in hours worked. Productivity growth provides room for non-inflationary real wage growth. The problem is that companies pocket these productivity gains as profits. This needs to stop and the government should do something about it. The wage share fell below 50%, a shocking demonstration of the way the wage system is punishing workers.
Key features of the December 2021 quarter National Accounts release are (seasonally adjusted):
- Real GDP rose 0.8% in the quarter. Annual growth rate of 3.3%
- Australia’s terms of trade (seasonally adjusted) increased by 5.9% in the quarter (significantly higher than in previous quarters) and by 8.3% in the 12-month period. The rise in commodity export prices outpaced the rise in import prices.
- Real net national disposable income, a broader measure of changes in national economic well-being, rose 1.4 per cent in the quarter and 2.4 per cent over the past 12 months, meaning Australians are (on average) better off than before At that time 12 months ago.
- The household savings rate (from disposable income) fell from 13.4% to 11.4%.
Overall growth picture – growth continues to slow
ABS—— media release –Say:
The economy grew for the second consecutive quarter after contracting in the September 2021 quarter, when economic activity was affected by the outbreak in the delta…
Household and government spending drove growth in the quarter, with total final consumption contributing 1.4 percentage points to GDP…
Imports of goods and services rose 8.1 percent, reducing GDP by 1.5 percentage points. This was the largest gain since December 2009, driven by consumption and imports of intermediate goods…
The household savings-to-income ratio fell from 13.4% to 11.4% as household spending grew faster than household income.
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 real GDP growth rate since the 1960s (horizontal red line is the average for the entire period (3.3%) from March 1960 to March 2022) .
The 2020-to-date average has been dominated by the pandemic.
However, as the obsession with fiscal surpluses on both sides of the political spectrum intensifies, it is also evident that growth performance over the past two decades has been well below historical trends.
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.
Expenditure composition analysis – domestic demand dominates
The chart below shows the actual quarterly percentage growth of key spending components for the December 2021 quarter (grey bars) and March 2022 quarters (blue bars).
Precautions:
In the first and third quarters, household consumption expenditure increased by 1.5%. It surpassed pre-pandemic levels for the first time in the December 2021 quarter.
2. General government consumption expenditure rose 2.7% in the third quarter and 8.3% in the past 12 months.
3. Private investment spending increased by 0.46% this quarter and 2.7% year-on-year.
4. Public investment increased by 1.69% in the quarter and 5.3% in the whole year, mainly due to some very large national infrastructure projects.
5. Export spending fell 0.87% in the quarter and 4.2% in the 12 months. Imports surge in March quarter = up 8.1%, up 7.6% for the year.
contribution to growth
What spending components are added and subtracted from the 0.8% increase in real GDP growth in the third quarter of 2022?
The following bar chart shows the contribution (in percentage points) of major spending categories to real GDP growth. It compares the March 2022 quarter’s contribution (blue bars) with the December 2021 quarter (grey bars).
Unordered:
1. Household consumption expenditure drove 0.8 percentage points out of the 0.8 percent overall growth rate.
2. Public investment increased by 0.1 points.
3. Inventory growth contributed 1.0 percentage points to growth as companies built up previously depleted inventory levels.
4. Private investment expenditure increased by 0.1 points.
5. Public consumption increased by 0.1 points. Overall, the government sector gained 0.7 points.
5. Net exports reduced growth by 1.7 percentage points, with exports falling (drag -0.2 percentage points) and imports rising (1.5 percentage points) at work (remember imports are a consumption of spending).
Material living standards improved in the third 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, or total output in volume terms, rose 0.8% in the March quarter, net real disposable national income growth rose 1.4%.
How do we explain it?
Mainly because while GDP growth was positive and the terms of trade rose strongly.
The chart below shows the evolution of quarterly growth rates for the two series since the March 2006 quarter.
Household savings rate fell 2 percentage points to 11.4%
ABS states:
Household savings fell as growth in household spending outpaced growth in total disposable income. Gross household disposable income rose 0.6%, with gains in labor (COE) and non-labor income partially offset by increases in payables.
Unearned income was driven by non-life insurance claims (+18.6%). Households received $2.8 billion in flood-related non-life insurance claims, increasing the savings-to-income ratio by 0.8 percentage points. This was partly offset by a reduction in government support payments as restrictions were eased.
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- | 15.3 |
Real GDP growth with fewer hours worked equals stronger labor productivity growth
The chart below shows quarterly growth in real GDP and hours worked using national accounts data for the past five years to the March 2021 quarter.
Both output and hours worked fell in the third quarter, the data showed.
To see the image above from a different angle, the image below shows yearly GDP growth rate (labor productivity) per hour worked from March 2008 to March 2022. 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 behind real GDP growth. Increased labor productivity means less labor is required for each output level.
Overall productivity rose as output grew faster than hours worked (falling in the third quarter). Productivity growth provides “room” for real wage growth without putting upward pressure on inflation.
The distribution of national income – as real wages cut and productivity rises – the wage share plummets
The share of wages in national income fell by 0.4 percentage points to 49.8%, while the share of profits rose by 1 percentage point. The higher terms of trade boosted profits but did not pass on to higher wage increases.
This is one of the main problems facing the new government.
For those claiming that rising wages will exacerbate the current inflation situation – they should be aware that there is room for non-inflationary growth in real wages as productivity grows.
The problem is that companies pocket productivity gains as profits. This needs to stop and the government should do something about it.
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.
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 after an initial rebound from the lockdown, growth slowed in the third quarter and was driven by domestic demand – household consumption, government spending and the buildup of inventories.
Despite booming terms of trade, the external sector undermined growth.
Productivity growth is strong, but watch for a drop in hours worked.
The wage share fell below 50%, a shocking demonstration of the way the wage system is punishing workers.
Enough for today!
(c) Copyright 2022 William Mitchell. all rights reserved.
