The Q2 National Accounts were around expectations, printing at +0.6%q/q, and +3.7%y/y. This is just about exactly on the RBA’s 3.75%y/y forecast in their Q3 SOMP. At the margin, non-farm GDP was a touch weaker than the RBA forecasts (rounding down to 3.5%, rather than up to their 3.75% forecast) – however this is an immaterial miss.
As has been the case for most of 2011-12, Q2 GDP was significantly boosted by Government spending. The +1.9%q/q increase in Government spending in Q2 (+2.8%q/q for capex and +1.6%q/q for consumption) added ~45bps to growth; about twice the size of the ‘normal’ contribution from Government spending.
It seems pretty sure that Government spending growth will at least slow down in 2012-13, and most certainly contract in Q3’12. This means that the private sector must accelerate to fill the gap.
I had expected that the consumption of government transfers and the income boost from the ‘tax cut’ we all got as the Qld flood levy rolled off would mean that private demand would firm in H2’12. The partial data we have for Q3 suggests I was wrong — private demand has been weakening.
Retail sales fell 0.8%m/m in July, and the August AIG Services index fell 4.1pts to 42.4 (taking the 3mma -0.4pt to 45.9).
While we are on business surveys — it’s worth pointing out that there is less conflict between these surveys and the National Accounts data than most claim. It’s just that folks are looking at the wrong thing!
The fact is that firms live in a nominal world – business surveys tell you how business is feeling, and business feels good when profits are rising. Thus, we find that the business surveys tend to be firm when NGDP growth is above average, and weak when NGDP growth is lower than average.
Non-farm NGDP growth was 1%q/q in Q2, and 3.3%y/y. This compares with a 15 year median ~1.75%q/q and ~7%y/y. It’s no wonder that earnings are disappointing, and that firms are grumbling. If the terms of trade keep falling, NGDP is likely to as well.
I never brought into the line that the mining boom was something that happened to other people in some other place – it lifted all sectors … and if the boom turns to bust, it’ll depress the economy in a similarly broad fashion.