Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 3 June 2015

GDP surprise (chart time!)

Upside surprise

Well, today was Australian National Accounts day for the first quarter of 2015!

GDP growth surprised forecasters by rebounding to post 0.9 per cent for the first quarter, taking annual growth to a better-than-feared 2.3 per cent.

Australia is now approaching an incredible quarter of a century since its last recession, at 94 consecutive quarters.

Zooming in the chart to a 10 year time frame we can see that annual growth is still some way short of where it needs to be, and indeed appears likely to decline over the year ahead.

And, as we shall see, below, there is every reason to believe that future quarters will not see such a strong headline result.

What gives?

Breaking down contribution to GDP into its component parts shows that growth for the quarter was overwhelmingly driven by booming exports (contributing 1.1ppts) and inventories (0.3ppts).

Summarily we are selling a great deal more iron ore, coal and other dirt, yet for much lower prices and consequently margins.

The residential construction boom is certainly pulling its weight, but non-residential construction was negative for a third quarter on the bounce, and government spend was also a damp squib.

While resources exports are ramping up apace, mining investment and construction is folding big time, leading in turn to some desperately weak regional economies.

Anecdotal evidence gleaned from yarning with Queenslanders at a Gold Coast conference this week tells me that the mining employment malaise has spread into even some of the more populous regional Queensland centres.

Everything else they talked about was related to State of Origin.

This (the resources malaise, not the State of Origin) should be reflected in weak state final demand - a measure which excludes exports - in the resources states. 

And indeed, so it is, particularly in Western Australia and the Northern Territory (I refused to chart numbers for the Top End in this data series - they're too wacky, and anyway, they wouldn't fit on my chart).

While the economies of Sydney, Melbourne and evidently many others are pulsating along, there is some serious drag being applied by mining regions, bringing domestic final demand (DFD) at the national level all the way back down to zip.

And that is pretty much the Aussie economy right now.

Households, and housing

At the household level moribund growth in employee compensation has slowed to a crawl over the past year, up by a miserly 1.1 per cent.

Fortunately, there are some other forms of income, and gross income has grown at double that pace, leading to a muted 1.4 per cent annual growth in disposable incomes.

These are crude measures, certainly, but they do show that wages and household disposable income growth has softened substantially.

Possibly the best part of the entire National Accounts was confirmation of the heroic boom in residential construction.

Dwelling investment ripped another 4.7 per cent higher in the first quarter to contribute handsomely to GDP growth, and comfortably broke new heights in chain volume measures terms.

As noted here previously, apartment construction is a surprisingly intensive activity, and it is contributing to economic activity, although we're clearly building too much of the high-density stuff.

Even major renovations (termed here "alterations and additions) picked up in the first quarter of the calendar year, if just by a smidgeon.

Dwelling investment now accounts for more than 5 per cent of real GDP in Australia with plenty more to come from the boom, which is a cool result, and a welcome good news story.

Finally for today, the interest paid on dwellings data puts paid to the doltish notion of a "national property bubble" being spruiked by so many bloggers and social media pundits.

Since September 2008, the Australian population has been beefed up by a hefty 2,475,000 persons or a thumping 11.6 per cent.

Therefore, if such a national property bubble did exist, then under bubble conditions total interest payable on dwellings would presumably have surged by a far greater percentage figure than this.

In fact, quarterly interest payable on dwellings has dwindled by some $3.4 billion lower since the third quarter of 2008, a material reduction of 18 per cent.

Now sure, we can all play silly buggers with numbers, but it's a silly flippin' argument, so what can you do?