The March quarter GDP figures look quite good, but they hide a massive shift in the economy away from employees and towards companies and profits. A couple of weeks ago when writing about the latest wage figures I noted that while the GDP figures were useful, the problem was “you can’t eat GDP”.
This has never been made more clear than with the March quarter figures which showed strong growth overall, but a shocking result for workers.
The 0.8% growth in the quarter was well above expectations and the annual growth of 3.4% is the type you like to see in a recovery:
If the graph does not display please click here
And yet our attempts to catch up to the pre-pandemic trend level has faltered a bit. At the end of last year, annual GDP was 2% below the pre-pandemic trend; now it is 1.7% below. At that rate we will only catch up around this time next year:
If the graph does not display please click here
As has been the case throughout the pandemic and the recovery, the big driver of the economy has been household spending, contributing 0.8 percentage points to growth in the March quarter. The buildup of inventories, which hopefully will now be bought and used, also added a percentage point.
Government spending also helped the economy, although much of the increase was due to flood assistance in New South Wales and Queensland and the ongoing purchase of rapid antigen tests.
Overall, the domestic economy grew quite strongly, but we lost out on the trade side of things.
In the first three months of this year our consumption of imports rose 8.1%, while the volume of our exports fell 0.9%. All up, net exports detracted 1.7 percentage points from GDP.
If the graph does not display please click here
That is not too bad, given our buying imports means we are spending well. The problem, though, is that the cost of everything is rising.
The Australian Bureau of Statistics estimates that imports prices rose 19% in the past year while the cost of dwelling construction and alterations rose 11.4% – the fastest rise since 1989 except for the introduction of the GST:
If the graph does not display please click here
So prices are going up, and going up fast.
But it is here that we start to get to who is benefiting from this, and why the fact that the economy is growing so well disguises what is really happening.
During the election campaign, as Anthony Albanese said he would support the Fair Work Commission raising the minimum wage by 5.1%, there was a lot of very stupid talk about a return to the hyperinflation of the 1970s or the Weimar Republic days.
These latest figures provide a big reality check to such misleading commentary.
In the March quarter real (non-farm) labour costs fell 2.3%. Outside of the June 2002 quarter that was ravaged by the pandemic, that is the biggest one quarter fall since 2016 and the second-worst fall for more than 20 years.
Real (non-farm) unit labour costs are now 5.3% below where they were before the pandemic:
If the graph does not display please click here
Surely suggestions that wages are driving inflation should at least have some evidence?
But if wages and overall labour costs are going down in real terms, then how is the economy growing?
To be honest, we got the answer on Tuesday when the latest Business Indicator survey showed that profits in the March quarter rose 10.2% while total wages rose just 1.8%.
The big reason is mining.
The huge rise in mineral prices and the relative lack of need to pay for extra workers in the export phase has seen mining profits explode:
If the graph does not display please click here
In the past year, mining profits rose 48% while their wages bill rose just 11.7%
It has led to corporate profits now accounting for a record 31.1% of national income:
If the graph does not display please click here
As the Bureau of Statistics put it, “Australian businesses benefited from rising prices.” Australian workers? Not so much.
We are still spending big. Household consumption was up 1.5% in the quarter, largely driven by our renewed ability to eat out, travel and enjoy ourselves doing recreational and cultural activities. We also continue to buy clothes, household furniture and equipment and cars in big numbers.
But while there has been a strong growth in travel and eating out, it remains well below pre-pandemic levels:
If the graph does not display please click here
Largely the increase in spending was driven by households reducing the level of their savings – down from 13.4% of income to 10.1%.
The savings ratio is nearly back at pre-pandemic levels:
If the graph does not display please click here
This suggests that the gains from household spending via reducing their level of savings is coming to an end. It means for household consumption to keep growing strongly, we will actually need household income to keep growing strongly.
But with interest rates set to keep rising, households’ ability to keep spending will falter. And with worries of inflation at the forefront, the push to limit wages growth will rise.
And yet as these figures show, corporations have benefited from the rise in inflation; and unless wages rise faster than they currently are, the story of our economy will continue to be one where workers get less and less of their fair share.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
