The latest news from the Australian Bureau of Statistics – Australian National Accounts: National Income, Expenditure and Products, June 2022 – Today (7 September 2022), this shows that the Australian economy grew by 0.9% in the June 2022 quarter and 3.3% in the 12 months to the end of June 2022. Growth was driven by a combination of household spending (which has yet to succumb to a cost-of-living crunch exacerbated by absurd interest rate hikes) and a booming export sector (supported by strong terms of trade). The problem is that while sustained productivity growth provides room for non-inflationary real wages to rise, real wages are regressing. The problem is that companies pocket these productivity gains as profits. The wage share fell further to a record 48.5 per cent, a shocking testament to the way the wage system is punishing workers. This needs to stop and the government should do something about it.
Key features of the December 2021 quarter National Accounts release are (seasonally adjusted):
- Real GDP rose 0.9% in the quarter. Annual growth rate of 3.6%
- Australia’s terms of trade (seasonally adjusted) increased by 4.6% in the quarter and 7.5% 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 2.7 per cent in the quarter and 3 per cent over the past 12 months, meaning Australians are (on average) more Well that time 12 months ago.
- The household savings rate (from disposable income) fell from 11.4% to 8.7%.
Overall growth picture – growth continues to slow
ABS—— media release –Say:
Growth in household spending and exports boosted the second quarter. This is the third consecutive quarter of economic growth following a contraction in the September 2021 quarter affected by the delta outbreak…
As COVID restrictions are further eased and international borders remain open, households have increased spending on domestic and international travel. Despite the strong growth in transportation spending, households are still spending only two-thirds of what they were before the pandemic…
The household savings-to-income ratio fell for the third consecutive quarter, from 11.1% to 8.7% as growth in household spending outpaced growth in household income…
Exports post strongest quarterly growth since Sydney Olympics boost tourism exports in September 2000
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 (3.3%) from the June 1960 quarter to June 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 spree and a once-in-a-century mining boom fueled by dramatic changes in our terms of trade, 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 the actual quarterly percentage growth of key spend components for the March 2022 quarter (grey bars) and June 2022 quarters (blue bars).
Precautions:
1. Household consumption expenditure rose 2.2% in the June quarter, well above pre-pandemic levels.
2. General government consumption expenditure fell 0.8% in the June quarter, but rose 6% in the 12-month period.
3. The growth rate of private investment spending fell 1.6% in the quarter and 0.7% year-on-year.
4. Public investment rose 5.9% in the quarter and 3.5% for the year, helped by some very large state-level infrastructure projects.
5. Export spending rose 5.5% in the quarter and 4.9% over the past 12 months. Import growth was only 0.7% in the June quarter, but was up 10% for the full year (a lot of travel didn’t take place!).
contribution to growth
Real GDP growth of 0.8% in June 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 June 2022 quarter’s contribution (blue bars) with the December 2021 quarter (grey bars).
Unordered:
1. Household consumption expenditure increased by 1.1 percentage points out of the overall growth rate of 0.9%.
2. Public investment increased by 0.3 points.
3. Inventory growth is a negative factor as companies reduce inventories resulting in a -1.2ppt contribution.
4. Private investment spending dragged growth by 0.3 percentage points.
5. Public consumption dragged down the growth rate by 0.2 percentage points. Overall, the government sector gained 0.1 point.
5. Net exports reduce growth by 1 percentage point, exports (1.1) are partially offset by imports -0.1 percentage points (remember, imports consume spending).
Material living standards rise in June 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 0.9% in the June quarter, net real disposable national income growth rose 2.7%.
How do we explain it?
A: The terms of trade have risen strongly – which means that the value of our exports has grown substantially.
The chart below shows the evolution of quarterly growth rates for the two series since the June 2006 quarter.
Household savings rate fell 2.4 percentage points to 8.7%
ABS states:
Household savings fell as growth in household spending outpaced growth in total disposable income. Total household disposable income rose 1.0%, driven by total income. Labor Income (COE) is consistent with strong labor market conditions. This was partly offset by non-life insurance claims, which fell back to more normal levels following major flooding events in NSW and Queensland in the March quarter.
Growth in total disposable income was reduced by income payable, driven by income taxes and interest payments. This is consistent with strong labor market results and higher interest rates this quarter.
The graph below shows the household savings rate (as a percentage of disposable income) from the June 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.
What is happening now is that households are being squeezed by rising living costs and interest rates and flat wage growth, which is driving the gap between income and spending, which is fed by falling savings rates.
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 June 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- | 14.6 |
Real GDP growth rose, but so did hours worked – leading to lower 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 June 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 June 2008 quarter to the June 2022 quarter. The horizontal red line is the average annual growth rate since the June 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.
While real output rose 0.9%, hours worked rose 4% in the June quarter, the data showed.
As a result, GDP per hour worked fell from 2.2% to 1.5% per year.
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 falls further
The share of wages in national income fell by 0.9 percentage points to 48.5%, while the share of profits rose by 1.5 percentage points. Higher terms of trade boosted profits, but did not share the gains with workers through higher wage growth.
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 in the second quarter continued to be modest and driven by domestic demand – household consumption, government spending and booming terms of trade (behind the problems in Ukraine and elsewhere) .
The terms of trade gain, but workers don’t share as company profits rise.
Some of these profits are at the expense of Australian households who are now paying higher energy prices, while our domestic gas production is being diverted to markets (Europe) that again offer higher prices.
So behind the scenes of disasters (wars, floods, etc.) companies are increasing their profits while the rest of us are going backwards.
some systems!
The wage share fell further to a record 48.5 per cent, a shocking testament to the way the wage system is punishing workers.
Enough for today!
(c) Copyright 2022 William Mitchell. all rights reserved.
