Swan's beautiful numbers check out
Close scrutiny of yesterday's GDP print will have Wayne Swan smiling – it shows Australia is far better placed to weather a European fallout than many believe.
There seems to be another kind of bounce at work today – in sentiment among media commentators. Funny how national debate can bounce from wrist-slashing pessimism to slavering optimism in the space of a day, and on the strength of a headline number.
Critics of Swan's beautiful set of numbers dwell on several nasty aspects of the national/global economic context. They make the following arguments:
– Most of the 'growth' is on the investment side, with the resources sector mega-projects pushing up GDP while job shedding continues in sectors such as manufacturing, service exports such as education, and tourism. That's the two-speed economy.
– The slow European train wreck threatens daily to become sharp and cataclysmic, meaning Swan's beautiful numbers were false optimism that willfully ignores the global exposures of our economy.
– China's sharp slowdown will 'roon us all' and the resources sector fixed investments will soon be covered in cobwebs.
– We have a huge structural problem in the housing market as prices continue to slide lower, unlike the massive debt stock secured against them.
Weighing up all this against yesterday's beautiful set of numbers is like wandering through a labyrinth of nuclear fallout tunnels with a small torch looking for cracks in the walls. If the Euro or China bombs go off, will we be able to take the shock?
On the household consumption side, the answer leans towards 'yes'. Poring over the past three sets of national accounts, there is almost no contraction in real terms in household spending across any of the Bureau of Statistics' spending categories. Have a look at the table below – only tobacco expenditure has fallen in real terms quarter-on-quarter.
The same pattern is clear in the previous two quarters, except for small contractions in clothing and footwear, and electricity and gas, in the September 2011 quarter. While some sectors – electrical retail, for instance – are justified in wailing about sliding sales and price deflation, consumer spending overall does not suggest a hidden economic slump.
The hubbub in the past fortnight over the importing of skilled labour was predicated on a couple of simple ideas – that the job shedding in the south east is severe, and that the unemployed workers there must be given a chance to find jobs in the resource sector before smart-alec foreigners take them.
The national accounts suggest very strongly (at least according to my flashlight, which like everything else is stamped 'made in China') that this story is at present quite wrong.
Household expenditure averaged across the sectors listed above is seeing real growth of 1.0 per cent, quarter-on-quarter, in trend terms. That's commensurate with the annual headline GDP figure of 4.3 per cent growth (real terms). A large cohort of 'hidden' unemployed, or vulnerably employed people wondering how long they'd have a job, would surely be producing bigger cutbacks in spending. The most recent unemployment figures – 4.9 per cent headline – ring true.
That is not to say that the federal budget, or the economy generally, will do well if a nuclear-scale economic bomb drops after the Greek elections on 17 June, or through either a failed recapitialisation of Spanish banks or a China slump.
But it does, for now, say that Wayne Swan's bouncy demeanour is far from unjustified. The economy is adjusting to the long-term structural change demanded by our new role as long-term supplier of south and east Asia's mineral and energy needs.
If I were Swan, I'd tell the ABS not to bother with its usual round of data revisions – this set will do nicely for Labor, thank you very much.
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