Thursday, September 02, 2010

Meantime the economy seems to be traveling just fine... or is it?

Sydney Morning Herald
See Colebatch, below

The government is claiming vindication after a surprise jump in economic growth delivered Australia one of the strongest growth rates in the developed world, exceeding those in the US, the UK and most of Europe.

At an annual rate of 3.3 per cent, boosted by a 1.2 per cent jump in the June quarter and revisions to earlier quarters Australia's growth rate is back to its long-term average and exceeded among developed economies only by nations such as Canada and Germany that are recovering from recessions.

"Finance ministers elsewhere and prime ministers elsewhere would kill for a set of outcomes such as these," declared Treasurer Wayne Swan. "This is an endorsement of what we've has done to support the economy."

The figures show consumer spending and private construction growing strongly to take the place of government spending which has plateaued after soaring 39 per cent in the past year to fund stimulus building programs.

"Key parts of the Australian economic story now look set in concrete," said Commonwealth Bank economist Michael Blythe. "The income flow from the commodity boom is moving out of forecasts and into the real world... The evidence includes the spike in company profits, rising wages and trade surpluses."

Western Australia leads the states in spending with final demand up an inflation-adjusted 8 per cent in the year to June, a growth rate exceeded only in the Australian Capital Territory where demand climbed 11 per cent.

NSW inflation-adjusted spending climbed 5.7 per cent, a touch below Victoria's 6 per cent. At the bottom of the pack was Queensland where real spending has climbed just 1.2 per cent over the year.

Much of the nationwide boost in spending was on motor vehicles, assisted by the January cut in tariffs and delayed deliveries of cars ordered using the business investment tax break that expired in December. Real spending on cars climbed 22 per cent, real spending on travel 9 per cent and spending on shoes 13 per cent.

"It’s fantistic. The economy is as strong as an ox, said Macquarie Group economist Brian Redican. "It's also well balanced with household consumption much stronger than anyone thought. From here, business investment should pick up the baton and drive growth for the next 12 months."

Business investment slipped 0.2 per cent % in the quarter with spikes in Western Australia and Queensland failing to offset falls elsewhere.

Treasurer Wayne Swan used the decline to argue it would be dangerous to cut short the Building the Education program which was in any event winding down.

"Around 97 per cent of the4 projects are currently under construction. You would be stopping projects which are currently employing people, keeping the doors of small businesses open and providing a pipeline of investment," he said.

"If it hadn't been for the BER we would have seen many more businesses hit the wall and many more people unemployed. Private demand fell off a cliff. We had to replace it with public investment, and now that is gradually being withdrawn."

Opposition Leader Tony Abbott said 5 billion of stimulus money remained to be spent and said it was important to end waste.

"I am not agaisnt spending on school infrastructure," he said. "But it has to be effective spending."

Mining profits were up about two-thirds in the quarter, driving up total profits 11 per cent to close to an all-time high.

Inflation remained subdued with prices climbing 2.7 per cent over the year.

Published in today's SMH and Age


BEWARE of getting what you wish for. The June-quarter GDP figures suggest Australia has entered the mother of all mining booms and, if so, a lot of today's businesses will not be around when it ends.

The 1.2 per cent growth in the June quarter, and 3.3 per cent over the year, sent the dollar back over 90¢ and had economists forecasting rate rises, as the Reserve Bank tries to rein in the rest of the economy to make room for the mining boom.

Wouldn't it make more sense to rein in the mining boom to make room for the rest of the economy? Yes, but we don't do things that way here.

The figures will vindicate the Reserve's confidence that it has read the economy right, and that the danger ahead is inflation. It might wait for more inflation data before moving rates up on Melbourne Cup Day, but the rise could be the first of several.

Growth is good, but what leaps out of these figures is that we have lopsided growth, with many areas hurting.

The big surprise was consumer spending booming in the June quarter, soaring 1.6 per cent, according to the Bureau of Statistics, roughly as much as it grew in 2008-09.

Retail sales are still flat. The bureau said we've been spending on things you don't buy in stores: entertainment and gambling, new cars, financial services, healthcare and transport (plane trips).

These areas make up just a third of consumer spending, yet they generated 84 per cent of spending growth in the quarter. Add in rent, and these six areas made up 90 per cent of spending growth in the year to June. Lopsided growth.

Now take industry. Half the growth in the June quarter was in just three sectors: construction, mining and hiring professional consultants. Lopsided growth.

Look at incomes. You will find corporate profits took an incredible 57 per cent of growth in income over the year to June. Small business took 11 per cent, and wages and salaries just 32 per cent. Workers' share of national income is now the lowest for 45 years. Lopsided growth.

It is not enough for governments to tell us they feel the pain of those doing it hard. They need the courage to change the way our dollars are shared.

A second surprise came from state data. It tells you that in the year to June, quarterly spending grew by $1.16 billion in the ACT but just $953 million in Queensland.

Queensland's population is growing at 2.4 per cent, but spending at 1.6 per cent. These figures suggest that at least until March, its economy was in deep recession.

They help explain why Labor lost nine seats there.

A third surprise. Our savings are shrinking. In 2009-10, national net savings dropped to 5 per cent of GDP, a nine-year low. Even household savings dipped to 1.4 per cent in the June quarter. It's not a good sign for our ability to finance the mining boom ahead.

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