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.