Mining story still makes for a decent read
With the election campaign supposedly fought mainly on economic management, it's surprising this week's figures for growth in the June quarter got so little attention.
According to the Bureau of Statistics' national accounts, it's not doing well, but nor is it doing particularly badly. Real gross domestic product grew just 0.6 per cent in the quarter and 2.6 per cent over the year to June.
This is a touch better than many economists were expecting, but it's well short of our "trend" growth rate of 3 per cent a year. According to the figuring of Paul Bloxham, of the HSBC bank, we've slowed from an annualised rate of 3 per cent in the second half of last year to an annualised 2.3 per cent in the first half of this year.
This is too slow to generate sufficient additional jobs to employ the growing labour force and prevent unemployment from rising. Unemployment's gone from 5.4 per cent to 5.7 per cent of the labour force over the seven months to July.
The problem - as everyone must know by now - is that we're engaged in a difficult shift from growth led by mining to growth led by the rest of the economy as the resources boom goes through a "phase shift".
And, as Reserve Bank governor Glenn Stevens has reminded us, the transition is being made more difficult by the end of the long-running housing credit boom, which has prompted households to return to their relatively high rate of saving and therefore allow their consumption spending to grow no faster than their incomes.
This week's accounts show little sign we've got far with the transition, making it fortunate we're still getting some support from the resources boom as it moves from its investment phase to its production and export phase. Investment spending by the mining sector looks to have fallen about 3 per cent in the quarter, but increased mineral exports do most to account for the 1.3 per cent growth in the volume of exports in the quarter.
With reducing mining investment also meaning fewer imports of mining equipment, this was sufficient to mean "net exports" (exports minus imports) had no net effect on growth during the quarter. (Over the financial year, export volume growth of 6.4 per cent and a fall of 1.8 per cent in import volumes meant net exports contributed a huge 1 percentage point to the overall growth of 2.6 per cent.)
Note that increased stockpiles of minerals did most to account for a rise in the levels of business inventories, which contributed 0.2 percentage points to growth during the quarter.
Note, too, that our terms of trade were steady in the quarter, implying no further fall in mining export prices.
The story on growth in the non-mining economy isn't as good. Consumer spending grew by 0.4 per cent for the quarter, which contributed 0.2 percentage points to overall growth. (Over the financial year, consumer spending grew 1.8 per cent, contributing 1 percentage point to overall growth.)
This growth is better than implied by the very weak monthly figures for retail sales (which account for only about a third of total consumer spending), mainly because of strong growth in purchases of services and, particularly, new cars.
Even so, its growth is well below trend consumption growth, which should be about 3 per cent a year. With the household saving ratio roughly stable at a little more than 10 per cent of household disposable income, this tells us disposable income must also be growing at well below trend.
Why? Because its growth is not being bolstered by a lot more people getting jobs and because wage increases aren't as high as they were.
Is slower wage growth a bad thing? It may not sound wonderful, but it is giving the Reserve Bank confidence inflation will stay low notwithstanding the likely rise in import prices following the fall in the dollar. So it has permitted the Reserve to cut interest rates further.
Turning to the other main components of non-mining growth, home building and alterations fell by a surprising 0.6 per cent in the quarter.
But though the housing market is hardly rip-roaring in response to the present very low interest rates (another consequence of the prudence that's followed the end of the credit boom), it is recovering, and home building grew by a reasonably healthy 4 per cent over the year to June.
Non-mining business investment seems to have shown no growth during the quarter, which is a disappointment. We must hope the expected change of government will give business a bit more confidence to take advantage of low interest rates and the still-low cost of imported capital equipment.
Despite all the talk of cuts, Kieran Davies, of Barclays bank, calculates the public sector grew by 1.2 per cent in the quarter.
Though GDP per hour worked improved by just 0.2 per cent in the quarter, it's up by 1.8 per cent over the year. That's pretty much in line with trend - a far cry from the earlier talk of a productivity crisis.
Since much of the earlier apparent weakness was explained by the investment phase of the mining boom (many workers employed building new mines and facilities from which nothing was being produced), the more recent improvement is no doubt partly explained by more of the mines coming on line.
The trade-exposed sector's difficulty coping with the high dollar - which does much to explain the weak growth of the non-mining economy - probably helps explain a bit more of the improvement. People have trouble understanding that productivity gains tend to come from pain rather than pleasure.
But let's not worry about that. Provided government changes hands this weekend, all our economic problems will evaporate within days.