Two speeds, or two directions?

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The strength in the Q1 National Accounts was surprising. It suggests that the aggregate economy is stronger than I had judged — however I do not think that it changes the over-all narrative all that much.

Prior to the number, the RBA’s assessment was that the non-mining sector could be allowed to grow more quickly (see here). These accounts – particularly the state-by-state splits – confirm this remains the case. Indeed, the two-speed problem may be getting worse.

Over the prior year, domestic final demand grew at ~5%, however 340bps of this (~70%) of this came from the mining boom States of WA and Qld (though part of Qld’s strength it also flood-rebuild). Adding in the mega-boom in the small Northern Territory (a further 20bps), that leaves demand outside the mining boom states growing by ~140bps.

Little wonder that listed corps, and a mojority of people, are feeling like times are tough at the moment.

In the most recent quarter, it’s not so much two-speed growth as two directions. State final demand contracted in NSW, Qld and Tasmania. The contraction in NSW makes it particularly difficult to believe the strength in the May employment release – which was importantly driven by an increase in full-time employment in NSW.

For an alternative view on the NSW employment data, and potential seasonal issues, I recommend this post.


  1. i think we are more interested in aggregate outcomes than cross-sectional dispersion, which is a side-show for the RBA. also, the dispersion on a quarterly basis is likely to be an especially volatile signal. i think the last 4 quarters of real GDP data combined with the last 4 quarters of unemployment data tell a strikingly similar story, which is much more important than attempts to dismiss month-to-month/quarter-on-quarter outcomes via seasonality and/or other statistical anomalies.

    1. i agree – the standard errors on the aggregates are smaller so we can have more confidence in the top line numbers – however we know the RBA thinks about this mining non-mining split, because Dep. Gov Lowe’s last speech was on this topic, and his bottom line was that the non-mining sector could be allowed to grow more quickly. i think that Lowe’s judgements about the mining and non-mining sectors remain valid, despite the recent data.

  2. I agree with most of what your saying Chris but I think the point is that the figure/s this month are likely to be a bit exaggerated. The “real” trend/s are probably good but not as good as the latest figures. On unemployment yeah its been low but thats mainly because the decline in the employment rate hasn’t yet translated to a rise in unemployment. Once demands for labour turns the corner we will probably see arise in both the employment rate and the unemployment rate. This isn’t a bad thing because if people begin to look it says says something about their outlook that has changed, i.e. they think their chances of getting a job if they look has improved.

  3. I think Glenn Steven’s speech on Friday was actually not a great one. Monetary policy works through expectations and he has put it out there that the economy is fine, asset-price falls are fine and people should get used to it (that’s not actually what he said but that’s how it was reported). That will guarantee more rate cuts as the year progresses. What he should have said is that real GDP growth has been at close to trend over the last year or so (excluding the Qld floods), but has been below trend since the GFC. Also, he should have said that nominal GDP – what people actually see in their pay packets and balance sheets – has been growing at the slowest rate since 1992 and that he does not expect that this will continue. Behind this statement would be the implicit promise that the RBA will ensure that it will not continue. If he said that, the recent rate cuts might actually have an effect. As it is, I don’t think they will and the RBA will be chasing the bills market down all through the year.

  4. I am inclined to think that there is the very real chance that, as you suggest, the gap between the mining and non-mining States will widen (given no external shock). From a resources perspective here in WA, things are gangbusters and look to be that way for some time to come.

    There appears little real growth elsewhere in the economy and the link you provided on employment casts some doubt as to the validity of the numbers. Rajat (above) makes some good points re weakness in the underlying economy: the surprising household consumption boost to GDP requires more understanding and appears contrary to the claims of retailers. I assume the seasonal adjustment refers to the post Xmas/holiday period included in this number. Don’t think we’ll see such exuberant expenditure into the future, household ATMs are closed, particularly with little, no or declining growth in house prices. The economy is a conundrum.

  5. I agree Non -mining GDP is growing at slowdown levels but I think one other thing is also at play here.

    Back in 1996 I think it was Saul Eslake who looked at Nominal GDP and it was at levels of ‘Recession’. People had not adjusted to lower inflation and so thought we were in recession.

    Keating lost the advantage of a strong recovery.

    It appears the same thing is happening. If people think inflation is much higher than it actualy is then we are in recession.

    1. Your kidding aren’t you. If we were in recession or even close you would see the employment rate falling and subsequently the unemployment rate would rise sharply. As it stands employment stands at historic highs and the unemployment rate is still very low. I don’t think the picture is rosy by any measure but as the charts above show the only state hat wen backwards was Tassie and well they have some serious issues around declining and ageing population so its hardly surprising. Bottom line there are problems but nowhere near the R yet.

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