Today (December 1, 2021), the Australian Bureau of Statistics released the latest- Australian National Accounts: National Income, Expenditure and Products, September 2021 – This shows that the Australian economy contracted by 1.9% in the September quarter. Given that the blockade last year severely affected the base, the 3.9% annual growth rate is relatively meaningless. The decline in economic activity was driven by private demand, which contracted by 2.4 percentage points—mainly due to the decline in household final consumption expenditures. Public spending contributes 0.7 percentage points to GDP, thereby weakening the decline in private demand to a certain extent. However, the increase in health spending by the federal and state governments is not enough to avoid contraction. Real national disposable net income fell by 3.8%, but it increased by 7.8% year-on-year. GDP per capita fell by 2% in the September quarter. Due to the new financial support, Victoria and New South Wales imposed strict lockdowns during this period, and the household savings rate increased significantly (from 11.8% to 19.8%). Since the restrictions have been significantly relaxed, we will have to look at the rebound in the next quarter. The most worrying thing about today’s data is that the share of wages in national income has fallen further, while the share of profits in the cake is rising. What needs to be done for this.
The main features of the September 2021 quarterly national accounts release are (seasonally adjusted):
- Real GDP fell by 1.9% this quarter. Annual growth rate of 3.9%
- Australia’s terms of trade (seasonally adjusted) increased by 0.4% during the quarter (a significant decrease compared to previous results), but rose by 23.1% in 12 months. This is due to the higher export prices of our primary commodity (iron ore).
- As a broader measure of changes in national economic well-being, real national disposable net income fell by 3.8% this quarter, but rose by 7.8% in the past 12 months, which means that Australians are (on average) better than they are. At that time 12 months ago, but worse than they were in the June quarter. This is largely due to the impact of terms of trade (iron ore prices).
- The household savings rate (from disposable income) rose from 11.7% to 19.8%, because total disposable income was supported by the decline in government income payments and expenditures.
Overall growth-winter lockdown leads to expected contraction
The national contraction is mainly driven by the blockade effect in Victoria, New South Wales and the Capital Territory. Economic activity in other states has actually not grown much.
ABS—— Press release –Say:
Domestic demand has driven the decline, and prolonged blockades in New South Wales, Victoria and the Capital Territory have led to a sharp drop in household spending. The increase in net trade and public sector spending only partially offset the decline in domestic demand. The GDP of the September quarter of 2021 is 0.2% lower than the pre-pandemic level of the December 2019 quarter…
Private demand reduced GDP by 2.4 percentage points, and household final consumption expenditure fell by 4.8%. Spending on household services fell by 5.8%, with spending on hotels, cafes and restaurants, entertainment and culture, and transportation services falling.
Public demand contributed 0.7% to GDP growth…
Net trade has also contributed to growth…The decline in commodity imports reflects continued constrains in global supply and declining domestic demand.
The first graph shows quarterly growth over the past five years.
Putting this point in the historical context, the chart below shows the 10-year average annual real GDP growth rate since the 1960s (the horizontal red line is the average of the entire period (3.3%) from the March quarter to September 1960) ) 2021).
The average value from 2020 to date is obviously the average value of the previous seven quarters of this decade and has been affected by the pandemic.
Obviously, as both political parties’ obsession with fiscal surpluses intensifies, the growth performance over the past 20 years has been far below historical trends.
Even with a large-scale household credit frenzy and a once-in-a-century mining boom driven by the stratospheric movement of our terms of trade, our real GDP growth is still much lower than long-term performance.
Analysis of expenditure composition
The chart below shows the actual quarterly percentage growth of major expenditure components for the March 2021 quarter (grey bar) and September 2021 (blue bar).
Precautions:
1. Household consumption expenditure fell by 4.8% in the September quarter. It is still well below the level recorded in the March 2020 quarter (before the pandemic).
2. General government consumption expenditure increased 3.6% in the September quarter and 5.8% in 12 months. The economy is still strongly supported by fiscal policy. It must remain at these higher levels for a period of time.
3. Private investment expenditures in the quarter increased by 0.7%, a year-on-year increase of 12.9%.
4. Due to some very large national infrastructure projects, public investment fell by 1.7% this quarter, but increased by 11.7% for the full year.
5. Export spending increased by 1.2% in the quarter and 3.3% in 12 months. Imports fell sharply by 4% this quarter and increased by 5.8% year-on-year.
Contribution to growth
Given a 1.9% drop in real GDP growth rate in the 9th quarter of 2021, which components of expenditure will increase and decrease?
The bar chart below shows the contribution (in percentage points) of the main expenditure categories to real GDP growth. It compares the contribution of the September 2021 quarter (blue bar) with the contribution of the March 2021 quarter (grey bar).
Disordered:
1. Residents’ consumption expenditures lowered the overall growth rate by 2.5 percentage points.
2. Public investment slowed down growth by 0.1 percentage point.
3. Inventory growth led to a 1.3% decline in sales.
4. Private investment expenditure contributed 0.1 percentage point to growth. Significantly slowed down.
5. Public consumption contributed 0.8 points as financial support had to be increased again in May and June to cope with the re-emergence of infection rates on the east coast. Public investment reduced growth by 0.1 percentage point. Overall, government departments contributed 0.7%.
5. The contribution of net exports to growth is 1 point—because the contribution of exports (0.2 points) increases the import effect (0.8 points) (remember that imports are the consumption of expenditures).
Material standard of living will decline in the 9th quarter of 2021
ABS tells us:
The broader indicator to measure changes in national economic well-being is actual national disposable net income. This measure adjusts the quantitative measurement of GDP for the effect of terms of trade, actual overseas net income and consumption of fixed capital.
Although real GDP growth (that is, total output in terms of output) fell by 1.9% in the 9th quarter of 2021, the net growth of real national disposable income fell by 3.8%.
How do we explain?
The main reason is that public financial support payments have led to an increase in total household disposable income (4.6%).
The chart below shows the evolution of the quarterly growth rates of these two series since the March quarter of 2006.
Household savings rate increased from 11.8% to 19.8%
The large-scale blockades in New South Wales, the Capital Territory, and Victoria have led to an increase in government support payments and an increase in total disposable income. In addition, the large-scale blockades in New South Wales, the Capital Territory and Victoria have led to a lack of consumption opportunities. The savings rate soared to 19.8%.
The chart below shows the household savings rate (as a percentage of disposable income) from the third quarter of 2000 to the current period. It shows that in the period before the global financial crisis, the credit frenzy was in full swing, and the savings rate was negatively correlated with the rise during the global financial crisis and the recent rise.
Although the savings rate still seems to be high, if we look at it in the long run, this behavior is not as “historically significant” as we think. Back in the era of full employment, when the government supported the economy and employment with sustained fiscal deficits (mainly), households saved a large portion of their income.
During the period of neoliberalism, the savings rate fell (to negative levels before the global financial crisis) as credit had been stifled.
It is hoped that families will be able to pay off their current record levels of debt and improve their financial viability.
To put the most recent period in the historical context, the chart below shows the household savings rate (as a percentage of disposable income) from the March 1960 quarter to the current period.
The following table shows the impact of neoliberalism on household savings. These models are replicated all over the world, and our economy faces more threats of financial crises than decades before neoliberalism.
The result for the current ten years (2020-) is the average of March 2020 (5 quarters so far).
| 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- | 16.2 |
Real GDP growth and working hours
The chart below shows the quarterly growth rate of real GDP and working hours for the past five years through the September quarter of 2021 using national accounts data.
The data shows that output and working hours have fallen as expected.
Looking at the above image from a different perspective, the image below shows yearly Hourly GDP growth rate (labor productivity) from the March quarter of 2008 to the September quarter of 2021. The horizontal red line is the average annual growth rate (1.1%) since the March 2008 quarter, which in itself is an underestimated indicator with a long-term trend growth of approximately 1.5% per year.
The relatively strong growth of labor productivity in 2012 and mostly above-average growth in 2013 and 2014 help to explain why employment growth is lagging in the context of real GDP growth. The increase in labor productivity means that the labor required for each output level is reduced.
Since the decline in output is less than the decline in working hours, productivity rises.
National income distribution-wage share continues to decline
The proportion of wages in national income fell by 0.9 percentage points to 50.1%, while the proportion of profits rose by 0.6 percentage points (decreased overall result).
The first graph shows the share of wages in national income, while the second graph shows the share of profits.
Historically, the decline in the wage share is a product of neoliberalism. If Australia is to enjoy a sustainable increase in living standards and consumption growth does not depend on record household debt levels, this trend must eventually be reversed.
Final demand changes at the state/territory level
The following table (taken from ABS-thank you) shows the final demand trends in each state/territory for the September quarter of 2021.
As a result, the three blocked states/territories—New South Wales, Victoria, and the Capital Territory—regressed.
in conclusion
Remember, the national accounts data is three months ago-it’s not easy to look back at past data and use it to predict future trends.
The data tells us that the economy has been hit by the blockade.
Given that the lock-in limit has now been significantly reduced, I expect the results for the December quarter (data to be released in March 2022) will be relatively strong.
That’s enough for today!
(c) Copyright 2021 William Mitchell. all rights reserved.
