Australia’s economy hit the wall in the September quarter. Output growth was a very weak 0.2%, or a sharp contraction in per capita terms of -0.5%qtr. Strikingly, consumer spending stalled, with a flat result and a decline in per capita terms of -0.6%qtr, as real disposable income collapsed, contracting -1.3%qtr, -4.3%yr.
The Australian economy almost came to a stand still in the September quarter, with output up a very weak 0.2%.
That was materially weaker than expected, Westpac 0.5% and market median 0.5%, range (0.1% to 1.0%).
Annual growth printed 2.1%, or -0.3% in per capita terms.
Quarterly growth momentum has progressively slowed, from a 0.6% average through 2022, to 0.5% for Q1 2023, to 0.4% for Q2 and now the 0.2% for Q3.
Rapidly rising population, which increased by 0.7%qtr, 2.4%yr, is underpinning domestic spending and economic growth.
The intense headwinds of high inflation, sharply higher interest and additional tax obligations are having a significant impact, leading to a sharp decline in real household disposable income.
Key surprise: Consumer spending was the key surprise and the key takeout from the September quarter accounts.
Consumer spending came in materially below expectations, stalling flat in the quarter against expectations of a subdued 0.5% gain.
The detail showed a much weaker picture on services which look to have contracted about 1%qtr on a combined basis. With retail components flat and vehicle operations down in the quarter, the offset came from a bit 13% surge in vehicle spend – which is likely to be a temporary lift as backlogged orders clear.
The income picture for households in the period was, in summary: nominal gross income rose by 1.8%, including wage incomes up by 2.5%; while nominal disposable income was almost flat, up only 0.1% (squeezed by rising interest payments and due to another unexpectedly big jump in income tax payments); and real disposable income collapsed, contracting -1.3%qtr, -4.3%yr.
The household saving ratio slumped to only 1.1% from 2.8%x, which is well below the recent average of around 6%, as households draw down the additional savings accumulated during the pandemic.
Overall, the update is a bleak one for households with incomes under intense pressure, diminished scope for support from savings and some temporary timing effects around vehicles likely to drop out of the spend profile.
Hours worked: The National Accounts estimate that hours worked declined by -0.6%, while the Labour Force survey estimated that hours work declined by 0.8%.
Expenditure detail:
Domestic demand grew by 0.5% in the quarter, representing a decline in per capita terms of about -0.1%.
Net exports was a sizeable negative for activity, subtracting 0.6pppts. Imports increased by 2.1%, led by an 8.4% rise in services as more of us holidayed abroad. Exports slipped, declining by 0.7%, with a 1.9% rise in services more than offset by a 1.2% decline in goods centred on a reduction in resource shipments, down 3.7%.
Total inventories added 0.4ppts to activity, including: non-farm business inventories, +0.9ppts (on a rebuild of mining inventories); public authority inventories, -0.4ppts; and farm inventories, -0.1ppts.
Home building was little changed, up 0.2%.
Business investment increased by 0.6%, led by infrastructure, up 2.3%.
Public demand grew by a robust 1.4%, but note the large drag from public authorities of -0.4ppts.
