Australia’s economy may be growing but households are yet to see much benefit | Greg Jericho

The September quarter GDP figures released on Wednesday marked the end of the long period of transition out of the mining boom. With solid growth driven by new business investment, no longer is the economy unable to escape the drag of declining mining investment. However, while business seems to have turned a corner, households remain stuck in the dismal low-growth world that has typified the past five years.

The latest GDP figures show that in September the economy grew by a neither brilliant nor bad 0.6%:

This was a touch below expectations, and as a result the value of the dollar fell slightly, but nonetheless the figures were generally good.

But they do highlight that what is classed as good is somewhat less so than was in the past.

The economy grew 2.8% over the past year in seasonally adjusted terms – a significant improvement on the 1.9% observed in the June quarter – and a touch lower at 2.4% in the less bouncy trend estimate.

It means that while the economy has picked up, it has now been five years since the economy was growing above 3% in trend terms. What was once average growth is now a peak we haven’t seen since September 2012.

The average annual GDP growth over the past five years is just 2.5% – a level that in the past usually meant we had just been through a recession. Instead it now means that over the past five years, while we have not at any time gone backwards, neither has the economy had any surges:

A major reason for that was the end of the mining boom – a period that saw the collapse of mining investment overwhelm the growth anywhere else in the economy. And yet in September, for the first time since 2013, private sector non-dwelling construction actually contributed to annual GDP growth rather than detracted from growth.

The signs of this came late last week, when for the first time since December 2012, private new capital expenditure was higher in trend terms than it had been a year before:

And the economic growth in September was largely off the back of this construction, which has been powered by strong public spending on infrastructure projects that is being undertaken by private sector firms:

In September non-dwelling construction contributed 0.9% points towards overall growth – more than making up for the decline in net exports and dwelling construction – as the housing boom truly comes off the boil.

But while business investment is back, households continue to be hesitant to spend. As household consumption led the way for annual growth, the contribution of 1.3% points is actually on the low side and reflects that in the past year household consumption grew just 2.2% – not just below the pre-GFC average of 4% growth but even below the average since then of 2.7%:

It was for this reason that, in his press conference on Wednesday, Scott Morrison was at pains to note the issues for households. He noted of the soft consumption result that it was not surprising “given the of living pressures on essentials that Australians are feeling”. He also noted that “clearly, many Australians were concerned about the cost of living and everyday pressures on their household budget.”

And that pressure remains despite the best growth in the compensation of employees for some time.

In the September quarter, compensation of employees rose 1.2% in seasonally adjusted terms – the best result since 2013.

But while the annual growth of 3.3% is an improvement on the woeful and record low 1.9% growth observed in March, the average growth per employee is just 0.9%:

As 0.9% remains well below inflation it means that real compensation per employee has gone backwards in the past 12 months and remains at a point below 2010 levels:

This translates into a similarly poor result for household disposable income – a favoured measure for household living standards.

In the past year, real household disposable income fell 1.9%, and it also means that the level of income households have at their disposal is lower than it was five years ago:

All up the GDP figures show that the economy is improving, but at the moment business is leading and households are yet to see much benefit. That is perhaps to be expected – it does generally take a few years of solid investment and profits before wages begin to tick up.

But overall the economy remains somewhat below par.

Using my measure of adjusted nominal GDP growth, which combines real GDP and inflation growth, we see the economy is growing below what would be expected with both average GDP and inflation growth:

But we should not be too negative. The signs are certainly good – and definitely much improved over this time last year. But nothing in these figures should have the Reserve Bank feeling a desperate need to raise interest rates. Yes, businesses, driven by government spending, are investing, but until households catch up, the construction of the new economy in a post-mining boom world remains a work in progress.