Despite efforts by rate-rise supporters to talk them up, the March quarter national accounts released yesterday were ugly. They illustrate how much of a struggle things are for Australians with a mortgage or who are renting — roughly covering two-thirds of the country’s households.
The 0.1% GDP growth in the quarter for a 1.1% annual rate — compared to 1.6% in the December 2023 quarter — is economic stagnation. GDP per capita fell for a fifth quarter, but this was due as much to weak growth as the big rise in population that’s been pushing that indicator down in recent quarters. The 1.3% fall in GDP per capita over the year was the worst decline since the early 1990s. The flip side of the migration debate we’re agonising over at the moment is that without continued strong migration, the economy would be contracting.
Households ran down their savings, with the savings ratio falling to 0.9%, funding a 0.4% rise in household consumption — of “essential categories like electricity, health, rent and food”, according to the Australian Bureau of Statistics (ABS).
That’s ordinary households struggling to get by while paying higher mortgages and rents. But there was also some higher discretionary spending — “musical events” (thank you, Ms Swift) and overseas travel — that’s cashed-up boomers without mortgages who continue to enjoy the comforts served to them by a political system geared to their financial interests at the expense of younger Australians.
We know why the economy is struggling: it’s been pummelled by 13 interest rate rises, as well as households enduring higher energy and grocery costs and insurance bills. But don’t forget Labor is keeping fiscal policy tight this financial year before what now looks like a well-timed relaxation from July 1, with income tax cuts, rent assistance and energy rebates.
The minimum wage will also rise by 3.75% from July 1 (as always, business predicts it will destroy it, as it reliably has for every minimum wage rise since the last Ice Age), benefiting around 2.9 million lower-paid workers. But before we get there, we have to get through the current quarter — in which unemployment has gone back over 4%, retail sales are dormant and wages growth has slowed. It’s shaping up very much as a winter of discontent.
A fall in hours worked meant the weaker growth result didn’t translate into lower labour productivity, and in the market sector productivity rose for the third quarter in a row, while real unit labour costs fell again — another nail in the “productivity crisis” coffin.
Rate-rise fans will continue to insist we need further tightening of monetary policy, but it’s now clear, with rising unemployment and stagnant growth, that we’re another rate rise away from a substantial downturn as households run down their savings just to pay for the basics.
On that note, it’s a shame the ABS has bought into a lot of the nonsense about what’s driving inflation. “Services inflation remained elevated,” the ABS opined, “reflective of elevated labour costs despite some easing of the tight labour market conditions.”
“Elevated labour costs”? After five minutes of real wages growth — now ended — does the ABS think it’s workers who are responsible for higher inflation? Where do “elevated wages” come in when, according to the ABS’ own data, insurance costs and rents are top examples of “sticky inflation”?
Perhaps the stats gurus should stick to the facts, rather than joining in the business and media sport of bashing workers and decrying what little wages growth they’ve managed to eke out amid a stagnant economy — which has nothing to do with inflation.
