Sunday, June 16

Real and nominal GDP composition over time

I have been thinking about business cycles lately, and the degree to which I think Australia might be at risk of a recession over the next 12 months (about which I am still thinking - and will hopefully blog soonish).

Anyway, I decided to explore the extent to which different classes of expenditure contribute to GDP(E) over time. For the heck of it, I looked at GDP in both current prices (nGDP) as well as in chain volume measures (rGDP).

What is interesting to see is the extent to which the terms of trade changes since the early 1990s (among other things) have affected the long-term composition of the various elements of GDP(E).

Let's start with imports and exports.

What to make of this difference? I think it is telling me our volume of imports (as a proportion of the economy) has increased dramatically, but in nominal dollar terms, it is less changed over time. For completeness, we have a couple of charts on the terms of trade and the value of the Aussie.

Let's now turn to the headline expenditure measures in GDP(E).

Here it appears household activity as a proportion of nominal GDP(E) has declined; but the volume of produce purchased is unchanged.

On to capital formation (which I find a littler harder to explain).

And some totals ...

Seriously, for such a long time period (from September 1959 until now), the compositional change in nominal GDP is the one to look at (the red line in the above charts). The real GDP series (aqua in the above charts) seeks to hold too many things constant, and in the process introduces artifacts into the historical comparisons.

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.

Saturday, June 8

Tasmania: some things are rotten in the apple isle

This week's national accounts focused my attention on Tasmania, with its six quarters of negative growth. I thought it was time for a more in depth look at the apple isle.

The employment data tells a similar story. Since the GFC, the number of people in jobs has been falling. The number of people unemployed has grown from 12,000 to 18,000 people. The participation rate has fallen. The unemployment rate has risen.

Let's look across some of the other domains of the economy. Dwelling unit approvals are down from almost 300 per month to just under 150 per month (trend).

Monthly retail turnover is sliding.

In short: some things are a bit rotten in the apple isle. 

Wednesday, June 5

Hedged pessimism

Today's national accounts left me a little unimpressed. Let's look at some of the expenditure-volume measures. The chart that particularly caught my eye was two quarters of negative growth in real Gross National Expenditure. But it was not the only expenditure-volume chart that left me flat. Domestic final demand is in the doldrums. As is private gross fixed capital formation. Even growth in household final consumption expenditure is weak by historical standards. My reading is a sick domestic economy, propped up by (mineral) exports and falling imports.

Another story that caught my eye was the state-by-state final demand charts; none of which are going gangbusters. Queensland and NSW are slowing. Growth in Victoria is looking shabby. The NT and the West look to be on a quick descent into a world of pain (perhaps: what the mining boom giveth, the mining boom hath taken away). This is WA's second quarter of negative growth. South Australia is in its third quarter of negative growth. Tasmania's contraction continues (count them: that's six quarters of negative growth).