It seems there has been a raft of bad news of late with property values falling, limited growth in housing finance, lower levels of consumer confidence, limited retail activity, low levels of housing construction and Europe in the midst of a debt crisis. However, despite all the bad news stories, the Australian Economy has continued to grow over the past year and has now not been in recession since the June 1991 quarter, 20 years and one quarter ago.
The Australian Bureau of Statistics released Gross Domestic Product (GDP) figures this week for the September 2011 quarter. GDP measures the market value of all goods and services produced within an economy over a certain period. In essence, it identifies whether or not an economy has grown or contracted over that period. Over the September quarter, GDP increased by 1.0% following a 1.4% increase in the June 2011 quarter. Over the past year GDP has increased by 2.5%. Over the past decade, GDP has recorded average growth annually of 3.0% so in light of the overall state of the world’s economy the figure is quite good.
The GDP data showed that consumers are continuing to act in a cautious manner with households saving 10.1% of their disposable income. This is an improvement on the 9.1% they were saving over the last quarter and continues the trend of households saving more since the onset of the Global Financial Crisis. In the years preceding the crisis Australian households were saving very little, in fact over the past decade households have saved an average of just 4.6% of their disposable income. Although savings are below their recent peak of 12.4% in December 2008 they remain at levels not previously seen since the mid to late 1980’s.
The data also highlighted that disposable incomes are growing, having increased by 6.0% over the 12 months to September 2011. Clearly much of the growth in disposable incomes is being saved as highlighted previously. Although many Australian’s feel as though they are doing it tough, and undoubtedly some are, disposable incomes have grown at an average of 4.1% over the past decade indicating that disposable income growth is currently at above average levels however, Australians are generally choosing to pay down debt and save rather than spend. In light of this many Australians likely feel as if we have less money due to the fact that we are paying off debt and saving at rates we haven’t done so in many years so in effect it feels as if we have less money.
Although households continue to save, the growth in disposable incomes is leading to growth in household consumption. The GDP figures reveal that household consumption is continuing to grow, up 1.2% over the quarter and 3.8% higher over the year. Household consumption has grown at a rate above the decade average of 3.4% over the past 12 months.
The data also revealed that the expenditure on dwelling investment fell by -2.9% over the year but was up 0.9 percent over the quarter. The fall in dwelling investment over the year is reflective of weak new dwelling construction activity, falling property values and lower sales activity. While investment in dwelling construction has been extremely low, non-dwelling construction investment has surged, up 24.4% over the quarter and 32.7% on an annual basis.
Overall, the GDP data highlights that the economy is continuing to grow however, consumers continue to take a cautious approach. In light of the ongoing volatile global economic conditions this is certainly not a bad approach and getting debt levels back to a manageable position is a good idea. The data also highlights the ongoing weakness of the housing construction sector. While consumers continue to act in a cautious manner it seems unlikely that there will be any substantial turnaround in housing construction activity nor is it likely that property values will show any significant growth.