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Hey, big spenders ... and it's not just the bananas

Date

Tim Colebatch is The Age's economic editor.

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THERE'S an old saying among economists: if a figure looks wrong, it usually is. Yesterday's estimate that GDP grew 1.3 per cent in the March quarter amid all the job cuts is a good example.

These figures strain credulity. If they are right, then the economy has far more strength than we suspected. If they are wrong, they will be revised down, or followed by a fall.

These are just first estimates. The bigger the first one, the more likely it is to be revised. For June 2010, the first growth estimate was 1.2 per cent; that now reads as 0.6 per cent. Just a year ago, GDP was estimated to have fallen 1.2 per cent in the March quarter: that fall is now just 0.5 per cent.

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Suppose the figures are right: what do they tell us that we didn't know? Quite a lot.

They show an economy firing on two engines: mining investment and consumer spending. We knew about the first, and is it firing! Engineering construction, 5 per cent of the economy, now generates half its growth.

In Western Australia, demand (total spending) jumped 14 per cent in the past year. On these figures, WA is growing faster than China. The surprise is the second engine. On these figures, far from being cautious consumers, we have been on a binge.

Consumer spending shot up by 1.6 per cent in the March quarter. We bought 3.7 per cent more food, 5.5 per cent more flights and transport services, as well as big rises in health services, spending in pubs and restaurants, entertainment, clothing, and so on.

But a close look shows something strange. In fact, growth in spending has not risen. In the past six months, it has been the slowest since 2010. What's new is that inflation has disappeared.

In those six months, the bureau says, consumer prices grew just 0.1 per cent. So virtually all our spending growth must have been used to buy more of everything. Really? Yes, we bought more bananas, but all the other stuff?

A second surprise: productivity shot up. With all the job cuts, hours worked fell 0.6 per cent. But output grew 1.4 per cent, so that means we produced 2 per cent more for every hour worked. The bureau estimates productivity shot up 4 per cent in the year, and 5.3 per cent in the market sector. That's hard to swallow.

Third surprise: the bureau says all sorts of industries are enjoying unexpected booms.

Government spending grew a modest 1.2 per cent over the year, yet the output of public administration shot up 5 per cent. You wonder how they work that out.

Mining had the fastest growth (11.3 per cent) and agriculture (10.6) was close behind. Finance recorded 5.4 per cent growth, despite job cuts and little credit growth. The professions, transport and wholesale trade all grew more than 5 per cent. Even on these figures, Australia is still a two-speed economy. Over the year, demand grew 10 per cent in the mining states, and 2 per cent in the south-east, where 70 per cent of Australians live.

The figures suggest Victoria was in recession in the second half of 2011, but leapt out of it in the March quarter, thanks to us consumers. Uh-huh.

Wayne Swan wants us to take pride in these figures. I would if I could believe them.

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74 comments

  • Let me think for a second………………….hmmmm.

    The US [The Obamanator especially] early this year was crowing about “the4 job numbers”; today they are falling off a cliff.

    The EU every second week crows it has solved the EU “debt Crisis then to find another genii pops out of the bottle.

    Two years ago we were all being told The GFC is over but today we are seeing it everywhere..

    ……………….hmmmmmm!!!

    Let’s get this right as early as mid last year it was being reported that The Big Miners were all under margin pressure from China and India and were reassessing capital Expenditure. China has been stock piling at its docks for 12months. China has more empty housing stock in Beijing than the entire USA.

    Hmmmmmmm!!!!!!!!

    Is there a pattern here? Are dots joining? Something is not making sense. If this GDP print is wrong then Swanee is going to have put the final nail in the coffin of this Government. If they are right then in reality they will not mean anything. Why as the money going through the system is all marginalised as it is becoming increasingly gross margin poor. Swan confuses by his own words GDP with Prosperity and as I have been pointing out for a few weeks now they are not the same. Australians are not feeling prosperous.

    For me this is very worrying when those that should know appear not to as they were all surprised yesterday. Further they have no proper understanding of what any small business person learns day one; cash flow and margin rule and you cannot spend more than you earn!!!

    Oh dear another day of gratuitous rubbish from Canberra!!!

    Commenter
    blizzard
    Location
    Sydney
    Date and time
    June 07, 2012, 7:45AM
    • A little bit of deja vu going here. Didn't I just read this post on another article? Cut and paste? Run out of ideas? Or is this how the LNP media stooges work -- one big lie, repeated often enough, will eventually persuade the average simpleton voter that our government is doing a bad job DESPITE all the cold, hard evidence to the contrary? Reminds me a little of the letterbox-drop scandal that enveloped the LNP in the Lindsay electorate not so long ago. Despite being caught utterly redhanded, a good third of the population still voted LNP!!? I despair. Maybe Australia deserves the Abominable No-man.

      Commenter
      kp
      Location
      Sydney
      Date and time
      June 07, 2012, 11:54AM
    • @ blizzard
      "For me this is very worrying when those that should know appear not to as they were all surprised yesterday."

      Dou you mean:
      Tony (AKA Dr No) Abbott - said it was hardly surprising that the Reserve Bank would cut rates this month because the decision reflected weak economic conditions, not strong economic management by the Government.

      Joe (eat workchoices and learn to love it) Hockey - ''Imagine how well our country could do if we had a good government''???

      Imagine if the good Labor government had two more votes in the lower house."

      Commenter
      my voice
      Date and time
      June 07, 2012, 12:52PM
    • my voice if you can explain to me how Australia having the good luck to have a surfeit of minerals in the grounds conflates to Canberra [either house] providing good economic management then please do as I am interested to be enlightened.
      All I can see is 20 years of Government wasting the windfall as they crow about their wonderful stewardship and rusted ons like you echoing the spin. All I see is your politics [again either side] providing the backdrop for this 20 years of Government giving us a serious dose of Dutch Disease.
      Lazy populations allow for lazy Governments and ours are now completely indolent!!!

      Commenter
      blizzard
      Location
      Sydney
      Date and time
      June 07, 2012, 1:34PM
    • I wonder if we will hear Swanny bragging about the unemployment rate going up?

      Commenter
      liklik
      Location
      sydney
      Date and time
      June 07, 2012, 2:45PM
  • Whether the figures are right or wrong the obvious observation is that the mining boom is by far the biggest egg in a small basket. Commodity prices being paid by China are bankrolling this show and anyone who wants to whats going to happen only has to track the demand.

    Commenter
    SteveH.
    Date and time
    June 07, 2012, 7:46AM
    • No, consumer spending is "bankrolling" the show.
      Mining investment is bankrolling the US, Korea and Japan where the heavy machinery comes from.
      Consumer spending largely stays in Australia creating employemnet in retail and small businesses.

      Commenter
      Steve
      Date and time
      June 07, 2012, 9:34AM
    • Steve don’t you ever give up? Your insistent shilling or spinning of “B grade’” interpretations of reality is mind boggling. Did you get what SteveH was drifting? No you obviously didn’t.

      Sometimes less is more which is what SteveH was opining but not with you you just lead with your chin throwing up simplistic rubbish!

      Commenter
      blizzard
      Location
      Sydney
      Date and time
      June 07, 2012, 10:36AM
    • Steve, you really should do basic research, or at least think about things beyond what you're told by those who do it for you.

      If we subtracted the export income and investment flowing in from this China mining boom, taking in each others washing would not make up the difference, not by along shot.

      As it is the south eastern states are only now just scrapping above a recession, and BTW that is where the bulk of the population lives.

      Commenter
      SteveH.
      Date and time
      June 07, 2012, 11:16AM
    • SteveH
      2% growth is still far from a recession. That is still higher than Australia's growth for any of the Howard years.

      Commenter
      Steve
      Date and time
      June 07, 2012, 11:48AM

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