While our politicians always put a gloss on numbers and events, it is difficult to conclude what is really happening, and to decide just how significant certain events will turn out to be.
The economic growth numbers – for the December quarter last year at 0.4 percent, and 2-4 percent over last year – released this week, record the weakest growth since 2013.
Yet Treasurer Scott Morrison is confident that improved household spending and stronger investment in the non-mining sectors will underwrite stronger growth in the future, as assumed in his budget.
But without government spending, overall growth would have been negative. It is also important to recognise that household spending is only being sustained by households running down their savings, and increasing their debt. The last three quarters have seen the lowest rates of household savings since the GFC. Household debt is now about 200 percent of household income. Moreover, while investment in machinery and equipment did pick up well in the quarter, private investment actually decreased by 2.2 percent in the quarter, with an 8.8 percent fall in non-dwelling construction, and a 1.3 percent fall in investment in dwellings.
Treasurers tend to pick out the bits of data that suit their political rhetoric but, in doing so, they can be quite misleading as to what is actually happening.
Importantly, there are often major structural trends underway that get overlooked in these day-to-day political comments. For example, in relation to household spending: fewer young people able to, or wanting to, buy a house; the accelerating trend to de-cluttering in households; the significant trend to on-line shopping; wages flat lining; and job insecurity mounting.
Although the measured unemployment rate is getting quite low, and the government boasts of the number of jobs that have been created, the “underemployment” rate is rapidly approaching double the unemployment rate, as many can’t work as long as they would like, and the tenure of many jobs has been shrinking.
There was also little focus on the trade numbers in this latest data release which also swamped the significance of domestic activity, with net exports actually reducing growth in the December quarter by 0.5 percent, that is more than the recorded growth in the quarter.
This should be of considerable concern, given the uncertainty of China’s real growth rate, and the mounting global “protectionist” sentiment, most recently stimulated by Trump’s decision to impose tariffs on steel and aluminium imports, as we wait to see what response this engenders from the major trading partners of the US, China, Europe, Japan, Canada, and the like. The risk of a self-defeating “trade war” is very real, with even our Reserve Bank governor this week describing Trump’s decision as a “very big shock” to the world economy.
Behind all this are very “schitzy” stock and bond markets, which have become volatile in recent weeks, responding to concerns about renewed protectionism and inflation, and mostly the US Federal Reserve’s decision to start to accelerate the increase in US interest rates.
It is certainly no time to be complacent – certainly no time to increase the gloss but ignore the emerging realities. You can only hope to spin the economy for a limited time before the reality breaks out.
The present situation reminds me of that fellow who fell off a 20-storey building, who was asked, as he passed the 10th floor, “How are things going?”, to which he responded, “So far, so good”!