First impressions: Australian national accounts, September quarter 2024

By Pat Bustamante Senior Economist, Westpac

The Australian economy grew by a sluggish 0.3% in the September quarter, with increased government spending driving all of the gain. Private demand (spending by consumers and businesses) flatlined with household consumption and new business investment surprising to the downside. The outcome was softer than Westpac’s forecast of 0.6%qtr and the market forecast of 0.5%qtr.

The main takeaway from the September update however is that an expected tentative recovery in private demand has not formed. The RBA did flag that a flat quarter for consumption was likely. However, the weakness of annual growth in spending and continued pressures on household disposable income – even with tax cuts flowing – points to a weaker underlying picture.

In another sign of the weaker underlying picture, average (non-farm) earnings per hour moderated to grow 1.3% in six-month annualised terms, down from 2.3%yr in the June quarter and well below the pre pandemic average of 1.8%.

In year ended terms, the economy grew 0.8% in the September quarter – the slowest annual rate since the early 1990s recession outside of the pandemic. This was considerably softer than Westpac’s forecast of 1.2%yr and the 1.1%yr increase expected by the market.

Total new spending by governments continues to grow strongly and is now at a record share of the economy (27.5% of GDP from the previous peak of 26.9% of GDP last quarter). New public investment increased 6.1%, off the back of a spike in defence-related spending and increased investment in infrastructure. Public consumption continued to grow at a solid pace (1.4%qtr and 4.7%yr), as cost-of-living measures announced in recent budgets kicked in from 1 July.

New private demand grew 0.1%qtr to be 0.7% higher over the year to Q3. This was slightly higher than the flat quarterly outcome recorded in Q2. With population running at a brisk 2¼%yr, new private demand on a per capita basis continues to go backwards.

The consumer sector continues to be sick, recording a flat outcome over the quarter to be just 0.4% higher in annual terms. This suggests that per capita consumption has fallen by almost 2.0% over the past year.

Actual consumption is estimated to have been around 0.4 ppts higher in the quarter, as governments used rebates and other cost of living measures to pick up the tab for certain consumption items such as electricity, public transport, cheaper car rego etc.

The benefits of costs of living measures, including the stage 3 tax cuts, were largely saved, with the household savings ratio increasing to 3.2% in the September quarter.

New business investment declined 0.2%qtr in the September quarter to be 1.5% higher in annual terms. Non-dwelling construction unexpectedly fell in the quarter, in part due to larger transfers to the public sector. Machinery and equipment continued to increase, up 0.6%qtr to be 0.7% lower in annual terms. CAPEX data showed the industries at the forefront of the underlying structural changes impacting the economy (such as investment in clean energy and renewables) continue to invest, which is being offset by businesses at the coalface of the consumer led slowdown.

Net exports and inventories were as expected. Net exports contributed 0.1 ppts to growth in GDP in the September quarter, on the back of a positive contribution from the net goods balance. Inventories detracted 0.4 ppts from growth in the September quarter, with the private sector running down its stock of inventories for a second consecutive quarter.

Cost pressures continue to moderate as the impact of the larger than average 2022-23 minimum and award wage increase roll out of annual calculations. Average (non-farm) earnings per hour moderated to 3.2%yr, from 6.5%yr in the June quarter. Not only was there a step down, but the pace of the decline is gathering speed with average (non-farm) earnings per hour up just 1.3%yr in six-month annualised terms, down from 2.3%yr in the June quarter and well below the pre pandemic average of 1.8%. This is leading to a moderation in unit labour costs (a key measure of domestic cost pressures). ULCs are now running at 3.9%yr, a touch above the outcomes recorded over 2019 when underlying inflation was below the target band.

First impressions: Australian national accounts, September quarter 2024

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