Consumption stronger than forecast in Q2

Household spending strengthens

Household consumption was stronger than forecast in the June quarter, rising 0.9 per cent in Q2.

There were a few likely reasons for that.

Firstly, we're gradually paying less interest on dwellings now, as mortgage rates comes down. 

Secondly, we were saving less as a proportion of incomes, as consumer confidence picks up.

And thirdly, spending was also boosted by Easter, ANZAC Day, and the slightly unusual accounting for electricity rebates, as explained by the ABS (which will presumably net out over time). 

Source: ABS

Australia's terms of trade index is well beyond its pandemic-driven peak, and appears to be steadily normalising lower. 

Despite this, there's been nothing too much wrong with nominal GDP, which has grown by a solid 4.1 per cent over the past year, to a record high.

Of course, once we strip out population growth, real growth per capita has been much more lacklustre.

GDP was up by a slightly better than expected 0.6 per cent in the June quarter, while GDP per capita increased by 0.2 per cent.

That's a marked improvement from GDP per capita growth of -0.2 per cent in the preceding quarter, granted, but still living standards are broadly flat over the year, and remain some way below where they were a few years ago.

The wrap

Overall, this was a slightly better than expected result, driven by household consumption, which will help to keep interest rates on hold until at least November. 

As government spending loses momentum, the question gong forward is whether this kind of growth in household consumption can be maintained. 

James Foster ran through the key details here.

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