THE DISTILLERY: GDP disclocation

As usual a lot of words and assumptions for just one quarter's figures. The GDP figures for the September quarter are history, but you wouldn't know that this morning, they are treated as being current, and yet the economy has moved on by two months. The real skill of an analyst is to try and relate statistics like the GDP numbers to industries and companies. For example, there has been a surge in savings by Australians, according to the Australian Bureau of Statistics. RBA Governor Glenn Stevens gave us the tip in a speech on Monday night, obviously not everybody noticed it, so some of our jotters this morning missed its importance.

But The Australian Financial Review wrote this morning: "The good news is household finances are in healthy shape, with the savings bug biting harder than previously thought as wages and salaries rose 1.3 per cent in the September quarter and 7.3 per cent over the year." And: "Further deterioration in food prices and new signs that consumers are saving at record rates has cast a pall over the sales and profit outlook for Australia's largest food retailers". Remember the comments from Metcash this week about price deflation?

The paper editorialised this morning: "With government spending slowing to a dribble, the high dollar sapping exports, and higher interest rates feeding consumer caution, it's not surprising that the economy stumbled in the third quarter." No it's not, but try telling that to some commentators and politicians.

And the paper's Chanticleer continued down this path: "The national accounts have confirmed what the retail sector has been complaining about for some time – Australians remain in a cautious frame of mind, are less willing to splash out on consumer goods and are showing an unusual propensity for saving."

And some commentators could have thought like News Ltd veteran tealeafer, Terry McCrann: "Not too much should ever be read into a single quarter's numbers. Yes overall GDP grew only 0.2 per cent in the September quarter – non-farm GDP actually fell 0.2 per cent. But this followed a 1.1 per cent increase in GDP in the June quarter. Non-farm GDP had been up 1.0 per cent in that quarter. So putting the two quarters together to get a more reliable number gives you annualised growth of around 2.6 per cent for the six months for the overall economy, and a somewhat sluggish 1.6 per cent (annualised) for the non-farm part of – most of – the economy. When you then start to drill down into the specifics, clearly the breaking of the drought had a big impact on the farm sector, just as winding down of the panic GFC stimulus had the opposite effect on the rest of the economy. Plus those rate rises. Those rate rises were not designed in response to a 'current boom' that has taken place; and so are not rendered wrong by the fact that it didn't take place."

And fellow News Ltd writer, The Australian's Michael Stutchbury also pointed out the savings impact: "The good news is that Australia's frugal consumers are keeping a lid on the economy, and perhaps interest rates, by splurging less of our boom windfall. Australians haven't saved so much of their income since the mid-1980s, before financial deregulation made it so much easier to go deeper into debt. The post-crisis rebound in iron ore and export prices means national income has grown nearly 10 per cent in dollar terms over the past year, flowing to households through strong job growth and a recovery in working hours. But, unlike our pre-crisis China boom, households have stopped borrowing on top of this, and instead are paying off debt."

Fairfax's Peter Martin said this morning: "Australia has lost its mantle as a world-beating economy after a sharp drop in economic growth returned us to the middle of the international pack, cast doubt on the Reserve Bank's decision to lift interest rates, and raised questions about our reluctance to spend. The slide in economic growth from 1.1 per cent in the June quarter to a threadbare 0.2 per cent in the September quarter pushed the Australian dollar to a low of US95.4¢. Had it not been for an extraordinary 21 per cent jump in farm production in the quarter brought on by the breaking of the drought, the economy would have shrunk." Apart from the US, Japan and China, most major economies also saw growth slide in the third quarter. Japan will see negative growth this quarter, Australia won't. And no mention of our now very high savings rate, nearly 10 per cent!

His boss on the Melbourne Age, Tim Colebatch wrote: "If yesterday's GDP figures are right, then the Reserve Bank has misread the economy, and given us interest rate rises we don't need. If the figures are wrong – and its startling revisions to 2009-10 data don't inspire confidence – then they are just a bit of static we can disregard. But don't assume it." He spotted the increase in savings, but didn't try and relate it to the growth figures.

Michael Pascoe, writing on SMH.com.au yesterday: "What chance the Reserve Bank mandarins are feeling a little sheepish after the Australian Bureau of Statistics told them they were wrong about the economy? Probably none. Today's lower-than-expected September quarter GDP figures and the downwards revision of the June quarter numbers mean either the ABS or the RBA has been wrong about the strength of Australia's economic growth. But rather than this leading to a showdown between these two august institutions – calculators at 20 paces, economic models facing off – the central bankers are more likely to shrug their collective shoulders and say it doesn't really matter, it's just history.'' It certainly is

And Fairfax's Elizabeth Knight also hopped on the economy bandwaggon and penned this little number: "The official GDP figures for the September quarter back up plenty of the anecdotal information that economic growth in Australia has again hit a soft spot – rising only 0.2 per cent. In the June quarter the economy grew by a far more robust 1.1 per cent, seasonally adjusted. Economists were expecting growth would be more tepid but this number was far lower than the 0.5 per cent or so that they had bargained on. The sluggish economic growth number is reminiscent of those produced during the global financial crisis and was sufficiently weak that it sent the Australian dollar into a tailspin falling immediately from 96.08 to as low as 95.41 against the US dollar." When will the gloom merchants realise the Australian dollar is falling? I bet we hear nothing from Gerry Harvey about that.

Elsewhere there's rich pickings. For example Fairfax's Malcolm Maiden wrote this morning: "The Australian Taxation Office's confirmation that it basically regards a private equity fund's capital gain on the sale of an asset as income that can be taxed ends the second round of a three-round contest. The Tax Office stunned the private equity (PE) funds and belted them from pillar to post in the first round just over a year ago, when it moved to collect $678 million of tax on the TPG consortium's float of Myer on the grounds that the share sale float was an income-generating deal. And it followed that up with a second round uppercut to the private equity jaw yesterday, by issuing a final ruling that is unchanged except for one thing: offshore PE fund investors in countries that have tax agreements with Australia may be able to export all of their profits, and be assessed in their home country. In the third round the PE groups will travel to Canberra to argue that the ATO decision will deter PE firms from investing here, undermines a law passed in 2006 that exempts foreign PE investors from capital gains tax, and undercuts Australia's ambition to be a regional financial centre – an ambition that will by the way also be undermined if the government approves Singapore's takeover of the Australian Securities Exchange."

And Fairfax reported this morning that: "Wayne Swan is poised to unveil controversial measures to create a fifth pillar of the banking system using the muscle of the $73 billion credit union and building society industry. It is a move that would create a new force in banking and put downward pressure on home lending rates. The Treasurer's plan would address rising pressure on the government to rein in the big four banks following their super-sized interest rate increases last month. The moves are expected to target the cost of funding, including reopening the government guarantee scheme on a limited basis to the credit unions, building societies and regional banks. Money would be injected into the securitisation market to allow non-bank lenders to raise funds at a similar cost to large banks."

The AFR mentioned this story this morning as well: "Members of credit unions and building societies would gain tax breaks on interest earned on deposits under a plan being considered by government officials to curb the power of major banks."

Fairfax's Ian Verrender revisits the alphabet merger, AMP buying AXA APH and warns: "The white flag has been raised and it's a done deal, with board approval from both sides. But now comes the tricky part, convincing shareholders not only to vote, but to vote in favour. After more than a year of skirmishes, pitched battles and outright war, one of the biggest and most important takeovers in Australian history – the $14 billion mop-up of AXA Asia Pacific by AMP and AXA's French parent – is far from a dead certainty."

And Nufarm was pinged yesterday by the corporate watchpuppy for not disclosing a big fall in profit earlier this year for 12 trading days. The fine? Just $66,000. The Australian's John Durie says it's not good enough: "Nufarm's disclosure breaches raise doubts about its financial systems, and the relatively weak ASIC penalty raises real concerns about its administration of the market. Yet today, when shareholders front the Nufarm AGM, they will be told by chair Don McGauchie that despite the problems and months of external reviews, roughly the same personnel are on the job and there is little hope of any changes any time soon. This situation is frankly not good enough for a $1.2 billion company, yet analysts upgraded the stock yesterday based on its latest bank refinancing. Granted, the new bank deal does provide more certainty, but given the extraordinary deficiencies in the company's systems, how can anyone be sure what is going on?"

And being a Nufarm story, The Australian's Bryan Frith just had to let another broadside go at one of his favourite targets: "It's no surprise a chronic over-promiser and under-achiever such as Nufarm should have copped a $66,000 speeding fine from the regulator. Given the continual controversies in recent months over Nufarm's disclosures, or the apparent lack thereof, however, it is something of a surprise to learn that ASIC's fine relates back to results for the half-year to January 31. Since then there have been several disturbing episodes." He then goes on to detail several more examples of delayed or surprising statements from the company. It will be an interesting meeting today, more so than the national accounts.