Now for next week’s unemployment rate and jobs figures for May after the March quarter GDP numbers showed, in a hard to find way, that the economy is slowing in the way the Reserve Bank wants it to slow.
Although the raw numbers showed an economy apparently stubbornly resisting the RBA’s tight monetary policy and the impact of the credit crunch, the reality is that there is a slowdown gathering pace.
It will become more apparent in late August when the second quarter figures are released, but it is clear the economy is heading for the sort of soft lanbding the RBA is trying to engineer.
But look for a small sign in next Thursday’s employment figures that will give the RBA more heart that its policies are working: it could be another small rise in the unemployment rate, or a slowdown in the number of new jobs being created.
Later today the trade figures for April will be released, and they should show a slowdown in the level of imports of consumption goods to go with the slide in retail sales over the first four months to April. Next week we also get housing and lending finance figures for April, which will again be subdued.
All this adds to the story of a slowdown gathering pace as the year goes on, so for that reason you can regard the March quarter GDP figures as something of a statistical oddity; more interesting for the story they disguise and not for the one they tell on face value.
On paper, the chances of another interest rise looked to have risen after the stronger than expected economic growth figures for the first quarter of the year.
The reality is that the economy is feeling the effects of four interest rate rises in eight months, including two this year, plus around 0.40% extra from the banks on top of that 1%; not to mention a credit crunch, rising petrol prices, higher food costs, and falling retail sales and consumer confidence, and yet it won’t lay down and die!
Figures from the Australian Bureau of Statistics show that Gross Domestic Product rose 0.6% in the year to be 3.6% higher in the year to March, compared to market estimates of 0.2% to 0.3% for the quarter and around 3.2% for the year.
The quarterly increase was marginally slower than the upwardly revised 0.7% rise in GDP in the December quarter (0.6% originally) and the annual rate was a bit slower than the 4.3% (3.9% originally) rate in the December three months.
It was a release that surprised the market and saw the value of the dollar perk up a touch to around 95.40 USc in the minutes after the release at 11.30 am.
But there are signs that the slowdown is taking shape and not appearing in the accounts in an obvious fashion.
Economists point out that growth is actually running at 2.6% on an annual basis over the December and March quarters, compared to an annual rate of 4.7% over the June and September quarters when the easy credit, low interest rate regime and slowly rising inflation, was in full swing.
Macquarie Bank interest rate strategist, Rory Robertson reckons for that reason the RBA’s hand won’t be forced. Another economist said that without the surprising 0.3% contribution from defence spending, growth would have slowed to around 0.3%, which was the market expectation.
On top of this we have the slowdown in April retail sales (and in the services sector, according to figures out for May).
As well the building approval figures were skewed by very high approvals for Queensland (which fell sharply in March), especially for investment properties. Economists said that allowing for Queensland’s above average rise, building approvals across the rest of Australia fell 0.3% on top of the 5.5% fall in March.
But the Reserve Bank, which yesterday left interest rates alone after becoming a bit anxious at their May 6 meeting, would have been a touch surprised at the figures, but once some closer analysis was done, they would have sat back happy that the slowdown is appearing and backing other indicators, such as the sharp drop in business and consumer confidence in recent months..
In the statement after Tuesday’s announcement of no change in rates, RBA Governor, Glenn Stevens said:
"The evidence is that this is helping to produce a moderation in demand. While labour market conditions to date have remained strong, indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has weakened significantly."
Well, figures from the Reserve Bank last Friday showed a sharp drop in the growth rate for credit with a rise of just 0.4% in May, the lowest monthly rise for around five and a half years. Housing and personal credit were subdued, while business lending growth slowed.
And building, private capital spending and retail sales were subdued to weaker in the quarter.
And yet the Australian Bureau of Statistics said in its commentary on the March quarter figures that household consumption was the main driver, along with higher new engineering and construction and government defence spending.
"In seasonally adjusted terms, the main contributors to the increase in expenditure on GDP were Household final consumption expenditure (0.4 percentage points), New engineering construction and National-defence capital expenditure (both 0.3 percentage points). The largest negative contribution came from Imports of goods and services (-0.8 percentage points)."
This was due in part to the slowdown in coal exports from the mines in central Queensland, thanks to the flooding and heavy rains in February and March. Exports are now back to normal (although the most recent rains might delay some final work).
But if exports had been norm
