There are a small minority of folks out there--especially 'would-be' online commentators--who have claimed that the domestic, non-mining economy is in recession, that the RBA will be forced to slash interest rates, that consumption is weak, and that basically everything is much worse than the RBA (and economists like me) have been saying. Turns out they are fools or lying, or both. Bottom line is that they are factually so wrong it is not funny.
Based on today's ABS National Accounts data, Australia's economy is growing strongly, the private (non-government) sector is expanding rapidly, private consumption is rising at a trend or better pace (so much for retail whining), and, amazingly, the non-mining economy is growing nicely. More specifically:
1/ Real GDP printed +1.2% for the quarter, well above what the "smart money" was thinking. This is despite a 0.5 percentage point subtraction from net exports due to slower than expected recovery in coal exports following the floods, and a subtraction of 0.4 percentage points via contracting public sector (government) demand. For what it is worth, the flood-induced contraction in the first quarter was revised up substantially from originally -1.2% to now just -0.9%, which makes the Q2 growth even more impressive. And Q4 last year has also been revised up from +0.7% to +0.8%, which the RBA estimates would have been +1.3% were it not for the floods.
2/ Indeed, private (not government) demand is growing very smartly in Australia, up 1.1% in the quarter, and 5.25% (annualised) over the first six months of 2011. And the purportedly-in-a-death-spiral manufacturing sector managed to grow by 2.8% in the second quarter.
3/ It turns out Australian consumers *are* spending at normal rates, and there is no retail recession, notwithstanding the hyperbole on this subject. Private consumption has grown at a trend pace of 3.25% (annualised) over the first six months of 2011, and by 1% over the second quarter alone.
4/ The non-mining sector grew by 1.2% over Q2 and, according to UBS, +1.1% "if we also exclude the associated sector covering engineers etc". That is, non-mining Australia is doing much better than anyone, including the RBA, thought possible.
5/ Real per capital net disposable incomes rose by a stunning 2.9% over Q2 to hit its highest level ever ($48,988 for every man, woman and child in Australia).
6/ The household savings rate has fallen from recent highs of +11.7% to now just 10.5%.
UBS's Chief Economist comments, "Today's data reveals much more underlying strength in the economy in Q2 than anticipated, with likely temporary weakness in exports and the unwinding of public capex from GFC stimulus masking a 'private economy' expanding above trend. Indeed, while business capex is very strong - as expected - today's data suggests the consumer is also spending at a trend pace. Based on this data, the first most obvious conclusion is that the underlying economy is doing a healthy trend-like pace of growth (though we know July/August has seen some slowing). The second conclusion is that the drivers of that growth appear to be somewhat different with more 'non-retail consumption' and more engineering capex than normal, but much less housing activity than we are used to. On the basis of today's data, with the consumer spending near trend, strong household income growth and the saving rate no longer rising, there is little (almost nothing) here to support an RBA cut over the next few months (absent offshore crisis)."
ICAP's Adam Carr adds: "You can see why I have been so contemptuous of the economic debate in Australia. For months now we’ve been told about how bad things are domestically - the non-mining recession etc and the fact that consumers have put their wallets away. Well the non -mining economy actually rose by 1.3% in the quarter, while mining was flat. Manufacturing output rebounded, rising by 2.8% in the quarter and a whole bunch of other non-mining related industries recorded strong growth (transport, wholesale, construction, information and media, professional services). The Australian economy consists of more than just Blue Scope Steel and a handful of whinging retailers it seems. Today’s numbers show just how baseless these arguments always were and reveal the unfounded hysteria underpinning them. The worst bit is they were based on nothing and yet they became and continue to be the consensus."
NAB says: "By industry, a few surprising developments – mining production was flat in Q2, following the slow recovery from weather event disruptions in the March quarter, whereas manufacturing growth was up 2.8%. Transport and storage services were up 4.4%, and rental/hiring/real estate services up 3.9%. The various GDP measures differed only slightly compared to the large variances in recent quarters. The expenditure and production measures of GDP both rose 1.1% in Q2, while the income measure rose 1.4%. Non-farm GDP rose 1.2% while farm GDP rose 1.5%."
CBA summarised, "Real GDP rose by 1.2% in QII, well above the market consensus centred on a 0.9% rise (CBA (f): +0.8%). This above‑consensus outcome was accompanied by upward revisions to QI growth estimates (from ‑1.2% to ‑0.9%). Despite these revisions, today’s outcome indicates only a partial recovery in coal production from the Queensland floods. And it leaves annual growth at a fairly lacklustre 1.4%. Nevertheless, the broad picture presented in the national accounts is of an economy in better shape in HI 2011 than generally thought. And, with the full impact of a recovery in coal exports yet to flow through, an economy in a good position to deal with the renewed global negatives. The main surprises in today’s data were the reduction in the size of the growth pothole in QI and the strength of consumer spending in QII. Consumer spending rose by 1.0% in QII and annual growth is running at a trend‑like 3.2%. Consumer caution may be weighing on retail spending. But the appetite to consume in the non‑retail area (about two‑thirds of overall consumer spending) is proving resilient...Today’s data shows that nominal GDP, the broadest measure of income rose by 8.3% in 2010/11. Within that overall picture, company profits rose by 11.2% and the compensation of employees rose by 7.7%. Government tax revenues are also a beneficiary (up 9.1%).
More importantly, that income does permeate through the broader economy. Recent RBA calculations, for example, suggest that 50‑60¢ of each $ of resources revenue remains in Australia."
