Better, but still bad: despite positive GDP figures Australia is not out of a recession | Greg Jericho

Wednesday’s GDP figures are likely to show that the economy grew in the September quarter but data on investment, profits and wages show that our economy remains bound up in the calamity of the pandemic recession.

At such times, the worth of GDP as a measure of economic health becomes even more questionable than usual.

Trapped in the belief that many in the media and the political sphere share – that a recession is two consecutive quarters of negative GDP growth – the return of positive growth in Wednesday’s GDP figures is likely to spark the question: “Are we out of a recession?”

Of course we are still in a recession. It’s one of those occasions when you don’t need to be an economist to know such things; you just need to look around you to know the reality of life at the moment.

But the September quarter was clearly better than the three months of April, May and June because, other than Victoria, most of Australia was more open.

Improvement on the worst quarter in living memory is not exactly a sign of strength.

When we look at the latest private investment figures we see a good example of this “better than it was, but still bad” situation.

The latest figures for the September quarter showed that non-mining private new capital expenditure (spending on buildings, structures, machinery and equipment) fell 3%. That’s bad but a heck of a lot better than the 8.6% fall in the June quarter:

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And non-mining investment is 18.2% down on the past 12 months – the worst ever recorded, breaking the previous worst fall of 17.8% that occurred during the 1990s recession.

New investment in mining, manufacturing and “other selected industries” is all down on where it was a year ago:

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The figures also contained the fourth estimate for investment in 2020-21. And here the better-but-not-good story continues. Not surprisingly, businesses expect to spend more on investment than they did in April-May when hopes of a vaccine were speculative:

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But even this improved outlook is still likely to see a fall of investment in 2020-21 compared with the last financial year. The latest estimate is for investment to be 10% lower than last year.

Yesterday the bureau of statistics also released the latest business indicators. They show also just how buffeted the economy remains by the pandemic.

For the third quarter in a row, businesses reduced their inventories. This is generally a bad sign as it means they are not confident of future sales and so are just selling their current inventory rather than restocking.

Once again September was not as bad as June – a fall of 0.5% compared with 2.9%. In the somewhat confusing way in which GDP is calculated, because the fall in September was less than in June, this means inventories will actually add to GDP growth by around 0.9%pts.

But the year-on-year fall of 4.6% is the biggest on record:

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Two industries that were most affected by the pandemic – accommodation and food services and arts and recreation – strongly rebounded in the September quarter:

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But even still the sales in arts and recreation industry are 24.8% below where they were last year, and in the accommodation and food services industry they are down 18.7%.

The growth of profits and wages also show the deep ructions of the pandemic continue.

Because the jobkeeper payments are included as business income, corporate profits in June and September have skyrocketed while wages overall have fallen.

Non-mining profits in the June quarter rose 30% while in the September quarter they rose another 10%.

Normally that would mean we were in the mother of all booms. Clearly we are not.

Certainly we are not in a wages boom. While total wages in the non-mining sector grew 2.1% in the September quarter, that came after a 3.8% fall in June. It means the total non-mining wages bill is 0.5% below where it was last year:

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The GDP figures on Wednesday are going to show a fair bit of seemingly good news. Quarterly growth will be quite large across a number of areas and in some cases we may see record growth. But that is only because June was so awful.

At times like this we need to stand back and make sure we look at the bigger picture and especially the annual growth figures, rather than being tricked into thinking the recession might be over purely because of one quarter’s worth of results.


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