It’s been the week of an economic miracle. Three months’ ago we were told the economy’s annual growth was a pathetic 2.4 per cent, but this week’s news is it’s now a very healthy 3.1 per cent. And wasn’t Treasurer Scott Morrison cock-a-hoop.
This is the vindication of everything he’s ever told us. It’s the proof the government’s plan for Jobs and Growth is working a treat.
Last calendar year saw the strongest jobs growth on record, with more than 1000 jobs created on average every day.
Like a favourite footy team, Australia has “climbed back to the top of the global leaderboard”, growing faster than all seven of the biggest rich countries.
“Importantly,” he said, “today’s results validate our budget forecasts and confirm the strengthening economic outlook we presented in the budget just a few weeks ago.”
Sorry to rain on ScoMo’s parade, but each of those happy claims is misleading.
The national accounts for the March quarter, issued by the Australian Bureau of Statistics this week, showed that real gross domestic product grew by 1 per cent during the quarter and by 3.1 per cent over the year to March.
Trouble is, initial quarterly national accounts come in two kinds: “not as bad as they look” and “not as good as they look”. Three months’ ago they were the former and now they’re the latter.
For the past two years they’ve had an almost perfect pattern of implausibly weak one quarter and implausibly strong the next. The problem is that it’s almost impossible for the bureau to measure the economy’s growth from quarter to quarter with any accuracy.
This is why sensible people – which excludes the media, the financial markets and many macro-economists – take the bureau’s advice and focus on its “trend” (or smoothed) estimates.
Three months’ ago they showed annual growth of 2.6 per cent (since revised up to 2.7 per cent) and now they’re showing 2.8 per cent – which is probably as close to the truth as we’re likely to come.
What ScoMo says about employment growth in 2017 is perfectly true and genuinely impressive. About three-quarters of the extra 400,000 jobs created were full-time – one in the eye for those supposed experts who depress our youth by telling them the era of good jobs is over.
But 2017 is receding into history. And in the first four months of this year, the average rate of job creation has slowed from more than 1000 a day to nearer 600.
As for our economy growing faster than the bigger developed countries’ economies, it’s not hard when our population’s growing faster than theirs. Our population grew by 1.6 per cent over the year to March, which explains why growth of 3.1 per cent in the economy turned into growth of 1.5 per cent per person.
As for the latest figures validating the budget’s optimistic forecasts out to 2019-20 (let alone its power-of-positive-thinking projections out to 2028-29), that’s a big call.
The budget forecasts growth in real GDP in 2017-18 of 2.75 per cent. You may think growth of 3.1 per cent over the year to March puts achieving that forecast beyond doubt, but you’d be bamboozled by the different ways of measuring growth.
It’s 3.1 per cent “through the year” from March 2017 to March 2018, whereas the budget forecast is for a “year average” of 2.75 per cent (that is, the whole of 2017-18 compared with the whole of 2016-17).
By my figuring, and assuming no further revisions, real GDP will need to grow by another 1 per cent in the June quarter for the budget forecast to be reached – which is possible, but unlikely.
Similarly, the budget forecasts that the increase in the wage price index will quicken to 2.25 per cent through the year to June 2018. But the figures for the March quarter showed it treading water at 2.1 per cent.
Turning to the detail, about half the 1 per cent growth in real GDP came from a surge in the volume exports, though increased imports cut the contribution of net exports (exports minus imports) to 0.3 percentage points.
Trouble is, part of the surge was explained by a catch-up after production problems in the middle of last year, and part by a new natural gas export facility coming on line, suggesting exports are unlikely to continue growing so strongly.
Growth in public sector spending contributed 0.4 percentage points to the overall GDP growth in the March quarter, with strong public consumption spending (probably mainly the roll-out of the national disability insurance scheme) in the quarter, plus state government spending on transport infrastructure explaining the strength of public investment spending in earlier quarters.
New housing construction made a small contribution to growth in the quarter, but it’s clear the housing boom is waning and so is likely to make little further contribution.
Business investment spending made only a small contribution to quarterly growth, with a fall of 6 per cent in mining investment (and 16.4 per cent over the year) largely offsetting the 3.6 per cent growth (and 14 per cent over the year) in the much-bigger non-mining investment.
So business investment is slowly recovering from the end of the resources boom as we’ve long hoped it would, but the biggest worry in the accounts is the lack of good news on the single most important driver of GDP growth, consumer spending.
It grew by a reasonable 2.9 per cent over the year but, after strengthening in the December quarter, grew by a pathetic 0.3 per cent in the March quarter.
And that required a further fall in households’ rate of saving, from 2.3 per cent to 2.1 per cent of their disposable income, with that rate down from a peak of 10 per cent after the global financial crisis in 2008.
With household debt already so high, not many families will want to borrow more to boost their consumption. And the falls in Sydney and Melbourne house prices mean no encouragement to consume from the "wealth effect" - the higher value of my home means I can afford to spend.
The big problem is the absence of real growth in wages to drive consumer spending. It may or may not come.
Apart from ScoMo’s boundless optimism, there’s no certainty we’ve now achieved lift-off.