Thursday, December 8

GDP hiccup

Yesterday's GDP print took the nation by surprise. Quarter on quarter, real GDP was down -0.5 per cent in the quarter ending September 2016. A negative print of this magnitude is unusual. It had some people asking whether the nation is slipping into recession (which in the crudest of terms is assessed by some as two quarters of negative growth). In today's post, I will seek to dissect the figures to give a balanced assessment on the state of the economy. Let's start our journey with the real GDP growth chart.

On the positive side

According to the ABS, the biggest contributor to the negative print for GDP was gross fixed capital formation (GFCF). The figure that was particularly outstanding was public sector GFCF. When this is examined, it appears to be an anomalous one-off correction, rather than a trend issue.

On the positive side, the GDP print told us that Gross National Income has improved.

We also know that the terms of trade are improving. We have not returned to our per-mining boom levels just yet (an index value of less than 70 on the current index).

The squeeze on profits may be coming to a turning point ...

On the negative side

The pain appears to be coming from the mining states (particularly WA) after the construction phase of the mining boom.

New business investment continues it decline (post the construction phase of the mining boom). Gross fixed capital formation is a measure of net investment in fixed assets (disposals of such assets are netted off gross investments).

Domestic sales growth is flat year or year (before adjusting for inflation).

Total sales growth is similarly anemic.

The level of net saving has ceased its decline. While there was a reduction in the level of savings quarter on quarter this was adding to demand.

Looking to the labour market

If we look more broadly, we can see there are signs of tension in the economy. For example, full time employment is down.

The participation rate has fallen sharply this year.

But we can also see signs of health. The unemployment rate continues to fall and the total hours worked is rising.


While the economy is not going gangbusters, nor is it teetering on the edge of recession. Yesterday's negative print is more than likely the result of an anomalous one-off correction to general government gross fixed capital formation. Beyond that, there is some weakness, particularly in Western Australia, but nothing that points compellingly to an imminent recession.

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