The Soft Economy - Australia

It is strange that for a given set of economic statistics, there are so many interpretations of how well the economy is performing. For Australia, some interpret the recent run of data to suggest the economy is strong, some say weak, some say mixed. Many of those who judge the economy to be strong have the unpleasant characteristic of heaping scorn on those who think the economy is a little soft as they resort to derogatory comments.

An unkind person might say those boneheads would be wise to look at some hard data, in context, when assessing the current economic momentum and the outlook.

The difference in interpretation is hard to fathom, particularly when the broad range of economic data are considered and facts are not cherry-picked to suit an argument, which is so often the approach of the loudest proponents of the strong economy.

Right now, it is clear that the economy is a little soggy, growing at a pace below trend. No one can deny that, can they?

Can I present some facts – not my interpretation, just facts. Look at these and make up your own mind.

• · GDP rose 2.5% through the year to the September quarter. Treasury estimate the long run growth potential of the economy to be a little above 3%.
• · GDP growth in through the year terms has not exceeded 3.0% at any stage over the last 3 ½ years and has averaged a tepid 2.0% over that long timeframe. Capacity constraints have reversed and there is now a not insignificant output gap.
• · In the 8 months since March, total employment has risen by a total of just 2,000; a tiny 300 per month. The participation rate has dropped 0.4% and the unemployment rate has risen 0.4% to 5.3%.
• · nnIn the last three years, the underlying inflation rate has fallen from 5.0% to under 2.5%. The 0.3% rise in underlying inflation in the September quarter was the lowest quarterly result in 14 years.
• · Housing credit growth is expanding at around 5.75% - the weakest growth rate in 34 years.
• · Business investment rose by over 20% in the year to the September quarter, and is up more than 300% in the last 5 years ago.
• · There is a mining investment pipeline of around $450 billion that is yet to be committed. In today's dollars, this is around 35% of GDP.
• · House prices have fallen for 8 straight months.

I don't know how others interpret data; but 3 years of below trend GDP, no job creation for 8 months, rising unemployment and falling inflation are not the indicators of a strong economy.