Does the economy’s strong growth last quarter mean the recession is over? Only to those silly enough to believe in "technical" recessions. Since few economists are that silly, it’s probably more accurate to call it a "journalists’ recession". Makes for great headlines; doesn’t make sense.
It’s probably true – though not guaranteed - we’ll suffer no more quarters where the economy gets smaller rather than bigger. But people fear recessions not because they deliver growth rates with a minus sign in front of them, but because they destroy businesses and jobs.
You’ll know from walking down the main street that some businesses have closed and not been replaced. You’ll probably also know of family or friends who’ve lost their jobs or now aren’t getting as much casual work as they need and were used to.
By any sensible measure, this recession won’t be over until the rates of unemployment and underemployment are at least back down to where they were at the end of last year, before the virus struck. And Reserve Bank governor Dr Philip Lowe said this week that wasn’t likely for more than two years.
On a brighter note, the increase of 3.3 per cent in real gross domestic product during the September quarter, revealed by the Australian Bureau of Statistics in this week’s "national accounts", does mean the recovery from recession is off to a good start.
So far, however, what we’ve had is not so much a recovery as a rebound. Remember, this unique recession was caused not by an economic threat, as normal, but by a health threat.
The contraction in GDP of a record 7 per cent in the June quarter was caused primarily by a sudden collapse in consumer spending of 12.5 per cent. Why? Because, to halt the spread of the virus, governments ordered many retail businesses and venues to close, employees to work from home if possible, and everyone to stay in their homes and leave them as little as possible.
As a result, people who’d kept their jobs had plenty of money to spend, but greatly reduced opportunity to spend it. Even people who’d lost their jobs had their income protected by the JobKeeper wage subsidy scheme and the temporary supplement to the JobSeeker unemployment benefit.
Turns out that, despite the loss of jobs, those two big support measures actually caused a jump in the disposable incomes of the nation’s households in the June quarter. But, since it was impossible to keep spending, the proportion of households’ income that was saved rather than spent leapt from 7.6 per cent to 22.1 per cent.
The worst-hit parts of the economy were hotels, cafes and restaurants, recreation and culture, and transport (public transport, motoring, domestic and overseas air travel).
But this initial lockdown lasted only about six weeks before it was gradually lifted in all states bar Victoria. In consequence, consumer spending jumped by 7.9 per cent in the September quarter, more than enough to account for the 3.3 per cent jump in overall GDP.
Guess what? The strongest categories of increased spending were hotels, cafes and restaurants, recreation and culture, and transport services. Spending on healthcare rebounded as deferred elective surgery and visits to GPs resumed.
The quarter saw the rate of household saving fall only to 18.9 per cent – meaning people still have plenty of money to spend in coming quarters, even if pay rises will be very thin on the ground. And, since Victoria makes up a quarter of the national economy, its delayed removal of the lockdown ensures the rebound will continue in the present, December quarter.
See the point I’m making? When the greatest part of the collapse in economic activity was caused by a government-ordered lockdown, it’s not surprising most of that activity quickly returns as the lockdown is unwound.
But this is just a rebound to something not quite normal, not a conventional recovery as the usual drivers of economic growth recover and resume their upward impetus.
Thanks to the massive support from JobKeeper and JobSeeker, the rebound is the easy, almost automatic bit. But even the rebound is far from complete. The lockdown will leave plenty of lasting damage to businesses and careers – and the psychological and physical recovery is much harder matter to get moving.
Treasurer Josh Frydenberg boasts that, of the 1.3 million Australians who either lost their jobs or saw their working hours reduced to zero at the start of the pandemic, 80 per cent are now back at work.
Which is great news. But 80 per cent is still a long way short of 100 per cent. And even when 100 per cent is finally attained, that only gets us back to square one. It doesn’t provide additional jobs for those young people who’ll be needing employment in coming years.
Note, too, that most of the rebound in employment has been in part-time jobs. So far, less than 40 per cent of the 360,000 full-time jobs lost between March and June this year have returned.
In March, the rate of unemployment was 5.2 per cent; now it’s 7 per cent. The rate of underemployment was 8.8 per cent; now it’s 10.4 per cent.
And, returning to this week’s figures for GDP in the September quarter, once you look past the rebound in consumer spending, you don’t see much strength in the rest of the economy. Output in mining fell by 1.7 per cent, while production in agriculture was down 0.6 per cent.
One bright spot was home building, which ended a run of eight quarters of decline to grow by 0.6 per cent. Many new building approvals say this growth will continue.
But non-mining business investment in new equipment, buildings and structures incurred its sixth consecutive quarterly fall, with subdued investment intentions suggesting the government’s investment incentives will have limited success.
Little wonder the Reserve’s Lowe has warned the recovery will be "uneven, bumpy and drawn out". Don’t pop the champagne just yet.
