No real surprise in yesterday’s national accounts with growth on track, no sign of any weakness feared by some analysts back in January, wages and labour costs under control, inflation weak and consumption moderate.
The ABS said the economy grew 0.7% in the final three months of last year, up from the sluggish September quarter where growth was cut to just 0.1% from the original 0.2% report.
From a year earlier, gross domestic product grew 2.7%, which was unchanged from the September quarter.
Federal Treasurer Wayne Swan said the wet weather towards the end of the quarter looks to have cut around 0.4% from growth by restricting coal exports and cutting what was shaping up to be a near record wheat harvest and turning it into just a solid outcome.
Household consumption was weak (no surprise), farming was a bit stronger given the better wheat harvest, mining was solid, retailing tough, investment solid, wage costs are under control, inflation was weak, profits were off a touch.
All in all a picture of an economy burbling along just under trend speed, but faster than just idling in first gear.
The savings rate was 9.7%, seasonally adjusted in the quarter, down on the 10.1% rate in the September quarter.
Non–farm GDP rose 0.8%.
That was up sharply from the negative reading of 0.2% in the September quarter.
That is a bit at odds with the picture of subdued demand outside the farm, thanks to the weak pace of household consumption and retailing in particular
The AMP’s chief economist, Dr Shane Oliver says "One pleasing aspect from the positive outcome for December quarter GDP growth is that it has almost certainly headed off talk of a "technical recession".
"While March quarter GDP is highly likely to see a contraction on the back of the floods, the June quarter is likely to see a big rebound as rebuilding kicks in and flood affected industries like coal mining return to normal production."
Among the main contributors to the quarterly growth were the jump in inventories, which added 0.8 percentage points, while private capital spending on new equipment added 0.3 percentage points.
The ABS said total changes in inventories increased $1 973 million in seasonally adjusted terms compared with a fall of $625 million last quarter.
Normally these inventories are boosted by changes in stocks of raw materials at iron ore, coal mines and other extractive industries, but analysts of the figures suggests that’s not the case.
If anything, higher stocks of unsold goods held by retailers and wholesalers could provide part of the answer, especially after the 1% fall in retail sales last October.
And higher stocks of wheat (it was a very good harvest), may have boosted farm stocks in the quarter.
The ABS said the main drag on growth was spending on non-dwelling construction, which shaved 0.2 percentage points from the quarterly figure. (That’s the disappearance of the government spending on schools and insulation).
Real labour unit costs fell in the quarter, while wages growth tailed away, despite the labour price index and average weekly earnings showing a rise. Company profits eased (as expected with the weaker results reported).
"While the floods have had some effect on the December quarter estimates, it is expected that the more significant economic impact of this and floods in other states will be reflected in the estimates for the March quarter 2011 release," the ABS said yesterday.
“This is a little bit higher than we thought it would be,” said Alan Oster chief economist National Australia Bank, with the real surprise being the level of consumption.
So-called final consumption expenditure added the equivalent of 0.4 percentage points to quarterly growth, the ABS said.
That was made up of a contribution of 0.2 percentage points each from house final and government final consumption.
So it wasn’t a huge rise in consumption by consumers or governments.
The terms of trade – the ratio of export prices and import prices – continued to improve in the December quarter, up 1.1 per cent (0.8% originally reported in the September quarter, revised up to 1.1% in the latest report). That saw real gross domestic income rise 1.1%.
From a year earlier, though, they were up a massive 22.2% reflecting the record prices for many key export commodities iron ore coal, cotton, sugar and gold. The RBA’s Commodity price Index for February, released this week, tells the story.
There was no contribution from the trade accounts, as reported in the December quarter’s current account on Tuesday.
