First impressions: Australian national accounts, March quarter 2024

The Australian economy continued to limp along in the March quarter, edging just 0.1% higher. The domestic demand impulse was a tepid +0.2% in the quarter. The big surprise was a larger than expected contribution from household consumption due to temporary factors. Data revisions have seen historical estimates of consumption increase, also driving a corresponding downward revision to household savings. This means lower buffers to support spending going forward.

The Australian economy continued to limp along in the March quarter, edging just 0.1% higher. In fact, total spending on domestic production (the e-side of the economy) was flat over the quarter, the small gain of 0.1% was driven by a positive “statistical discrepancy”. The outcome was a touch under the median market expectation of 0.2%.

Annual output growth printed at 1.1%, moderating from 1.6% last quarter. At 1.0%yr, this outcome is well below annual population growth of 2.4%, pointing to further weakness in economic growth per capita down -0.4%qtr and -1.0%yr.

The domestic demand impulse (spending by consumers, businesses, and governments) was as expected, edging 0.2% higher over the quarter.

The underlying drivers differed. The big surprise was a larger than expected contribution from household consumption +0.2ppts v +0.05%ppt, which was offset by a larger than expected drag from private new non-dwelling construction.

Household consumption grew 0.4% in the March quarter, up from Westpac’s expectation of 0.1%. Recreation and culture spend posted a slight 0.2%qtr rise, after four quarters of significant declines. The ABS noted a significant boost from events including the Taylor Swift concerts and Formula 1. The direct effect is worth about 0.15ppts on total consumption.

In annual terms consumer spending was 1.3% higher, much lower than Westpac’s expectation of a 0.1%yr. We alluded to this risk in our note yesterday. The ABS revised higher estimates of the amount spent by domestic consumers on tourism overseas (or services imports), which were used for the first time to estimate the March quarter GDP.

Around incomes, wages and salaries showed a slower gain in the quarter but non-wage incomes were a little firmer than expected. That largely washed out through prices though with real disposable income holding flat in the quarter and up just 0.4%yr, having declined materially, by 4.3%, over the year to September 2023. The picture is of the various headwinds to income – from the rising cost-of-living, higher interest rates and higher tax payments – moderating but with only a muted recovery in incomes so far.

More spending by households, out of essentially the same income, has seen the household saving rate revised lower. In fact, the saving rate was revised to just 0.2% in the September quarter 2023 and 0.9% in March quarter 2024. The net result implies a more material run down of extra savings accumulated during the pandemic. About 45% of the estimated $255bn reserve now looks to have been spent. Previous estimates had suggested only 23% of the reserve had been spent as at December.

Bottom line: Household spending has been more resilient than previously estimated, but now households have smaller buffers to support spending going forward.

Productivity and unit labour costs: Hours worked increased by 0.1% in the quarter, after falling by around 1.0% over the second half of 2023. Coupled with the small 0.1%qtr increase in GDP, this saw labour productivity go sideways over the quarter (and over the year). However, growth in unit labour costs slowed on the back of the subdued growth in wages: +5.8%yr from 6.6%yr last quarter.

Expenditure detail:

The domestic demand impulse (spending by consumers, businesses, and governments) was as expected, edging 0.2% higher over the quarter.

New public demand grew by 0.6%qtr to reach 27.2% of GDP – a new record high, with the previous peak been 27.1% of GDP during the pandemic (Q3 2021).

Home building declined, down by -0.5%qtr and -3.4%yr, as higher interest rates and the slowdown impact.

Business investment fell 0.7% in the March quarter on the back of falls in new engineering construction (-4.8%qtr) and new buildings (-3.1%qtr). Equipment spending grew by 2.1%qtr, a touch softer than expected.

Net exports detracted -0.9ppts from growth in the March quarter. This was due to growth in imports volumes (+5.1%) far exceeding growth in exports volumes (+0.7%). This is a clear reversal from last quarter, when weakness in import volumes and expansion in export volumes saw net exports contribute positively to growth (+0.4ppts). 

Total inventories contributed +0.7ppts to activity, including: non-farm business inventories, +1.0ppt (on an inventory build-up following the run-down last quarter, particularly in the wholesale and mining sector) while public authority inventories detracted -0.3ppts.

2024 KangaNews Australian Investor research poll results

Westpac Institutional Bank was awarded

Best overall research on Australian fixed income
Best research on the Australian credit market, including corporate and financial institution issuance (excluding securitisation)
Best research on securitisation
Best Australian macroeconomic research

First impressions: Australian national accounts, March quarter 2024

2024 KangaNews Australian Investor research poll results

Westpac Institutional Bank was awarded

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