So is yesterday’s GDP number a one-off, a mere “bump in the road” (the road that’s taking us out of the woods), a product of a coincidence of several factors, or reflective of something more substantial going on — or failing to go on — in the Australian economy?
The most honest, and least helpful answer, is that it’s both. The economy isn’t moping along at 0.8% annual growth. But nor is it growing at the June GDP rate of 3.3%.
We know that because, in addition to the “one-off” September figure of 0.2%, the ABS revised down previous GDP estimates. In the year to September, seasonally adjusted growth was 2.7%.
The term “economy” is a misnomer at the moment, because as everyone furiously agrees, there’s not one economy, but a two- or three-speed economy at work. We all know about the mining industry. Farming has had less of a profile, but it, like mining, is benefiting from strong international demand now that the drought has broken.
The rest of the economy is, to use the word I found myself using over and over again in radio interviews, “patchy”. It’s not just the national accounts saying it. The past two CPI releases have shown a retail sector under the pump and continuing to heavily discount, confirming that shoppers are keeping their hands in their pockets. And full-time employment stumbled in last month’s unemployment numbers.
Economies are never homogeneous, of course, but the “patchiness” is particularly evident because two of the key drivers of Australian economic growth and two of the biggest employers, retail and construction, have been faring badly for most of the year.
The tough conditions retail has faced since the stimulus handouts wore off last year reflect an major post-GFC switch to savings by Australian consumers. For decades, Australians have been told they didn’t save enough — along with our failure to work long enough hours, it was one of the great themes of economic self-flagellation. Now, suddenly, we’re doing what economists, officials and politicians stretching back to Hawke and Keating wanted us to do — we’re saving more and spending less. Prudence is suddenly fashionable.
But that comes with its own consequences, and retail is bearing the impact of them, as CPI data have been showing. A higher household savings rate isn’t a free lunch — it has real costs for the economy. There’s an awful lot of money that was previously going to retailers that is now sitting in banks. And it continued in October. ABS retail trade figures released this morning showed a 1.1% fall in the month, seasonally adjusted.
Whether we revert to our old spending habits might depend on how well we remember that mild sense of panic in the depths of the GFC, and the steady drip of bad news from the US and America. The RBA will be hoping it’s a permanent shift in our saving habits.
The news is worse for construction. ABS data shows that over 2010, we’ve been building fewer houses and all dwellings, month in and month out. That’s because of several factors: the first home owner’s boost ended at the start of the year, interest rates started going up, and we have a systemic and growing problem at state and local level with an inability to build enough houses for our growing population.
Unless you’re one of these conspiracy theorists who think the housing shortage is a confection of the property industry, this should be regarded as a serious short and medium-term problem.
Property development has also been hammered as the banking cartel has constricted lending, and commercial property has also found loans hard to come by.
It’s important in the short term as well as further out because construction, remember, employs about 9% of workers. That’s one of the reasons the government targeted it in its stimulus packages. It’s become clear over the course of 2010 that the BER program has been critical to keeping the construction industry going once the first home owner’s boost ended and housing construction began falling away. That’s the BER program with a complaint rate of under 3%, but which the media will tell you is a debacle of the order of the insulation program.
But the stimulus afforded by the BER program is wearing off. Even outside NSW, which rushed out its spending in a hurry to maximise the effect, projects are starting to wind up — there’s only a tail-end of about 12 months’ worth of spending to come.
If we were smart we’d have used this period to fix our systemic regulatory bias against housing construction at the state and local government level. COAG made a start on that, but the issue has dropped off the agenda since the election. Without us fixing the barriers to investment in housing construction, the construction sector faces an uncertain future as the BER withdraws.
The other side of the coin is bank competition, and we’ll see what Wayne Swan has to offer on that shortly. So far, Joe Hockey has made all the running on that issue.
Hockey’s entirely off-beam on yesterday’s figures, though. He issued a press release demanding the government halt reckless spending but invest in essential infrastructure.
But, um, Joe, two of the biggest Coalition campaigns this year have been against government infrastructure spending, on the BER and the NBN. It also campaigned against the mining tax, which will fund hundreds of millions of dollars worth of investment in transport and mining-related infrastructure.
Must be some other “essential infrastructure” we don’t know that Joe was thinking about.
Nice one, BK. It seems that, just when Joe Hockey had made a bit of a name for himself, he sullies is reputation again.
Joe and Tony both need proof readers installed somewhere between the speech centres of their brains and their lips, fully equipped with a 7-second delay dump button, to protect them from themselves.
“Property development has also been hammered as the baking cartel has constricted lending, and commercial property has also found loans hard to come by.”
I’m concerned by the signs that bakers are now forming cartels and intervening in financial markets – is it because they really need the dough?
Just confirms that the ‘most useless man in Australia’ (Daily Telegraph’s moniker for RBA’s Glenn Stevens still can’t work out how to keep the small business economy going while trying to damp down asset and resource bubbles. That recent rate rise was crude, rude and inefficient. Sack them all.
BK, “two of the biggest Coalition campaigns this year have been against government infrastructure spending, on the BER and the NBN.”
Er, No. BER and NBN do not meet the criteria of ‘infrastructure’. Unless, BK, you think that building the Titanic was an exercise in infrastructure spending? Or what about Kubla Khan’s pleasure dome in Xanadu ? Building that must have cost a packet and kept a lot of people busy.
And I cant wait to hear about all this transport thats going to come through the mining tax, BK …
“the mining tax, which will fund hundreds of millions of dollars worth of investment in transport and mining-related infrastructure.”
Do you know something that Gillard hasnt told the rest of us about?
@CHRIS TWOMEY
There is some hollowing out in the Donut markets. 😉