SCOREBOARD: The definition of madness

There are several key takes from today's extraordinary GDP numbers. Firstly and most importantly, the economy is now officially rising at an above trend pace. Growth blitzed expectations to rise 1.3 per cent q/q in the March quarter and 4.3 per cent y/y. Consider that the average growth rate since the 1990's has been 3.1 per cent. Now that's with a detraction to GDP from net exports of 0.5 per cent. So, without that drag from the external sector, growth, or demand increased by an extraordinary 1.8 per cent in the quarter (5 per cent y/y) – private demand by 2.2 per cent q/q (7 per cent y/y). Putting this into some perspective, over the last three quarters, private demand is up by 8 per cent (annualised) which is double the historical average and the strongest growth in nearly 5 years.

How so you say? I don't believe it I hear. I've no doubt that we'll be hearing more statements along those lines over the next few days. But that brings me to my second point. The farcical stupidity of those who have been arguing the Australian economy was weak – including, and especially, the RBA Board. Recall yesterday's press release from the RBA stating "the Board judged that, with modest domestic growth…” you know the rest. As I have highlighted repeatedly there was and never has been any evidence or truth to those statements – those blatantly misleading statements. It's one thing to be wrong, that's fine we all get things wrong, we're only human and it's unreasonable to expect anyone to be right all the time. But we should learn from our mistakes and acknowledge them. This too is human. However to repeatedly, mind numbingly persist with a blatant untruth, against all the evidence, is gobsmacking lunacy.

Household consumption, the ‘weak or cautious consumer', provided half the lift in demand growth this quarter. Consumer spending too is above trend – it's been at or above trend for the last year by the way. All the while drivelling fools have been telling us how weak spending was.

That the data is somewhat dated is true, but to bleat that fact as if it in some way detracts from the economy's strength, says more about the intelligence of those saying it than anything. The data shows us that the economy had considerable momentum into this easing cycle and that rate cuts were not needed. This is a fact – the economy was accelerating all through 2011 and now, through the March quarter of 2012, it is well above trend. Look at the way the momentum is going. I would suggest this dated data gives a much more reliable picture of the economy and its trajectory, than the persistently incorrect forecasts of economic weakness.

Finally, and I have highlighted this previously, there are no puzzles here in the data as I have heard some people suggest recently. Using this term is a cop out. It usually reflects the refusal of the speaker to accept an obvious truth or fact, instead preferring their own flawed judgement or perception. Demand is well above trend, the economy is fully employed and non-tradable inflation is accelerating. It's that simple. Employment growth in particular has been strong so far this year. We may get a pull back tomorrow; it may even be a significant pullback given the volatility of the series. But the point is the unemployment rate at 4.9 per cent, or even at 5.5 per cent, is historically low and around full-employment levels. Consistent with the strong growth figures we saw today. Ongoing negative talk – ongoing stupidity – is the single biggest threat to Australia. It's time that people, especially our business ‘leaders' and the broader economic community woke-up to that fact.

Europe certainly remains a threat as well, but so far it is nothing more than fear – the sky falling on our heads. If it happens, if Europe does implode then by all means the RBA should slash rates, just as they did during the GFC. But let's not jump the gun. Recent data highlights why basing policy on emotion is inherently flawed.

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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