Sunday, June 9

WA: is it in recession?

With the release of this week's national accounts, there was a lot of breathless reporting that two quarters of negative growth in state final demand meant Western Australia was (technically at least) in a (perhaps domestic) recession.

The counter view, put forcefully by David Gruen from Treasury at a Senate Estimates hearing, was that state final demand does not take into account exports or imports. Gruen argued that some of the analysis was of comic book quality.

While the ABS does not produce a GDP estimate for each state and territory, we can start with state final demand, add the international trade in exports and subtract the international trade in imports to better approximate the state of play. These charts follow.

On this basis, one could argue that WA has only had one quarter of negative growth and, therefore, it is not technically in recession.

On the other hand, I am not a keen believer in using two consecutive quarters of negative growth as the only rule of thumb for identifying a recession. The rule of thumb I prefer is a 1.5 percentage point increase in the unemployment rate within a twelve month period. Let's look at WA in this light.

In these charts we are seeing a rapid deterioration in WA's labour market conditions since the middle of 2012. The number of people in employment is in decline. The participation rate is declining. The number of unemployed persons has grown by over 20,000 people. And, most importantly, the unemployment rate has grown by 1.7 percentage points in 10 months (seasonally adjusted). However, to be fair, the trend unemployment rate growth is still less than 1.5 percentage points.

Furthermore, before coming to a view on whether WA is in recession, it is worth looking at some other aspects of WA's economy.

While dwelling unit commencements are trending up, motor vehicle sales are down and the retail trade is flat (in nominal terms).

Conclusion: you would want more data before firmly concluding that WA is in recession. However, the risks all look to be on the down side. I would not be surprised if in three months time a consensus had emerged that WA is indeed in the midst of a recession.


  1. excellent work -- you have made me much more open minded about the possibility of a national recession. Without looking this closely at the data, i had casually assumed that NX would precent an output contraction. It seems very possible after reviewing the facts in WA. I pinched your unemployment chart and linked back from this post

  2. I think either Gruen or Parkinson in testimony at estimates on this argued that the concept of a state or regional recession may be pointless anyway? Perhaps best to point that out but coming from a region in FNQ which by comparable criteria would have been judged to be in depression for 5 years without any national wailing such as over closure of car factories in Geelong and no massive Gummint support in any way equivalent to that now being thrown at Geelong! Some really are more equal apparently? Perhaps also relevant to point out that regional divergences such as this are actually lower than historical average I believe a point made also by Guvnor Stevens?