In the wake of yesterday’s December quarter national accounts from the Australian Bureau of Statistics (ABS), is there any chance governor Michele Bullock and the Reserve Bank of Australia board will apologise to Australians and admit that their interest rate rise last November was not merely unnecessary but also a display of incompetence?
Justifying that rate rise, Bullock claimed:
While the economy is experiencing a period of below-trend growth, it has been stronger than expected over the first half of the year. Underlying inflation was higher than expected at the time of the August forecasts, including across a broad range of services. Conditions in the labour market have eased but they remain tight. Housing prices are continuing to rise across the country.
Well, now we know that, as Bullock was making that claim, the Australian economy was struggling for air. In every quarter since December 2022, economic growth has weakened, and that trend continued in December, with quarter-on-quarter growth of just 0.2%. As a result, annual growth slid to 1.5% from a rate of 2.1% in the three months to September. In per capita terms, the economy contracted by 0.8% in the December quarter.
It’s true that back when Bullock and the RBA board made that call, retail sales were up 1.5% in November, but the ABS said that was due to income-stressed consumers taking advantage of discounting by retailers during Black Friday and other events, not a buoyant economy or cash-happy shoppers flinging money around.
After the rate rise, sales slid 2.1% in the normally buoyant month of December. Retail sales in January could not recover the lost sales from December, even with a 1.1% rise — the ABS observed that “underlying growth is stalling”.
It is a pretty sorry state of affairs when the country’s statisticians can see what is happening to an important area of household spending, while the so-called premier economic analysts at the RBA mistake desperate consumers for an overheating economy and decide to push up rates.
The RBA since then has continued its threats to further punish households with rate rises — to further crush demand, to further slow the economy. Such threats increasingly look not just unnecessary but also actively harmful.
Government spending helped to prop up the economy, despite a big drop in Defence spending due to the conclusion of military exercises in the previous quarter, while mineral exports played their usual role too (a rise in mining production and the running down of inventories confused some media commentators who’d been expecting a negative GDP result). And, of course, continued high migration. But households have gone missing — household spending rose just 0.1%, with spending on essentials lifting but spending on discretionary items (like eating out) slumping.
Businesses, at least, continued to invest, with the ABS reporting a modest 0.7% rise in the quarter, “which was the fourteenth successive quarterly rise”. Last week’s capital expenditure data suggests that business investment is continuing to pick up — a welcome sign for productivity, since we now know that it’s investment, not workers, holding back productivity.
Productivity, of course, is another of Bullock’s bugbears, with constant warnings — parroted by business spivs and the Financial Review — that the current bout of fairly modest wages growth is “unsustainable” without productivity growth.
When the Productivity Commission exploded the whole “productivity crisis” narrative last week, it noted, “The decline in labour productivity appears to have halted in the first quarter of the 2023-24 financial year.” What does the second quarter tell us? GDP per hour worked rose 0.5%, and 0.6% in the market sector, while real unit labour costs were flat. So, well called by the commission, and another nail in the coffin of the “productivity crisis”.
Add in that Monday’s business indicators data, which is an important input to the national accounts, showed wages growth slowing, and Bullock’s complaints about unsustainable wages growth start to look a lot like big business-style worker bashing.
Of course, Bullock has more than just rhetorical weapons — she has a very blunt tool in monetary policy. And now we know her judgment in using it has been deeply flawed.
