Data Wrap - final demand growth slows to a standstill

In this edition of the Data Wrap we consider what today's National Accounts say about South Australia's recent macroeconomic performance, and review the latest statistical releases in respect of construction activity and retail sales.

South Australian final demand slows to a standstill
The growth of economic output in South Australia has slowed to a standstill in the first half of 2019. The latest estimates of state final demand, released by the ABS today, show that it is unchanged in the three months to June 2019, following a rise of just 0.1 per cent in the March quarter.¹ These results suggest that final demand actually fell in per capita terms through the first half of the year.

Annual growth rates illustrate the degree to which final spending growth has slowed. Real SFD rose by 0.8 per cent through the year to the June quarter 2019, down from 2.7 per cent through the year to the June quarter 2018. This result is consistent with national trends. Growth in national final demand slowed from 3.2 per cent to 0.9 per cent over the corresponding period.

The slowdown in SFD is broad based, with the latest data showing a downturn in public sector investment activity, a further contraction in residential building activity, and ongoing sluggish growth in household consumption spending. Public sector investment expenditure fell by 6.1 per cent in the recent June quarter, following a 4.3 per cent fall in the March quarter. Meanwhile, total dwelling investment fell by 0.7 per cent, its third consecutive fall.

Household consumption expenditure rose by a subdued 0.2 per cent in the June quarter.  On an annual basis household consumption is now growing at its slowest pace in almost 5 years, and is barely sufficient to outpace population growth. Household spending has been undermined by sluggish growth in wages and other factors that have weighed on household confidence, including an uptick in unemployment, a flattening off in local house prices, and growing pessimism regarding the outlook for the national and world economies.

On a brighter note, business investment rose by 1.1 per cent in the June quarter, which is the sixth consecutive quarterly increase. Public sector consumption expenditure also rose solidly (0.5 per cent), although at a slower rate compared to previous quarters.

Australia’s gross domestic product rose by 0.4 per cent in real trend terms in the June quarter 2019. While the latest result was broadly in line with market expectations, output remains below potential and GDP growth is weak by historical standards at around half the long-term trend. Through the year to the June quarter GDP rose by 1.5 per cent, which is the weakest annual result since early 2001 when the introduction of the GST induced a temporary slowdown.

GDP growth in the June quarter was ultimately supported by a large rise in exports of goods and services (up 1.1 per cent), while public sector consumption expenditure also rose strongly (up 1.5 per cent). But other areas of domestic demand were weak as household consumption expenditure continued to expand at a subdued rate (0.3 per cent), business investment was flat, and there were declines in dwelling construction (down 3.2 per cent) and public sector capital spending (down 0.8 per cent).

Construction activity continues to moderate
South Australian construction activity moderated in the June quarter, continuing a general pattern of slow decline since activity peaked in the second quarter last year. Data released by the ABS last week show that total construction work done in real seasonally adjusted terms fell by 4.8 per cent in the June quarter and was 11 per cent lower than a year earlier. A similar pattern is evident at the national level, with construction activity down 3.8 per cent in the June quarter and down 11 per cent through the year.

The fall in construction activity over the past year has been broadly based, led by large falls in engineering construction (down 13 per cent) and residential building (down 12 per cent), accompanied by a modest decline in non-residential building (down 5.1 per cent).  

Although construction activity has eased over the past year, activity levels remain at a high level by recent standards. The volume of work done in the June quarter 2019 was 10 per cent above the previous 5 year average level.

Retail sales lose momentum
Retail turnover figures released by the ABS yesterday suggest that household spending has eased over recent months. Growth in the value of monthly retail turnover measured in trend terms slowed from 0.3 per cent in April to just 0.1 per cent in July 2019. Retail sales at the national level have also decelerated, with growth slowing from a consistent 0.2 per cent to 0.1 per cent in July.

South Australian retails sales have grown at a slightly slower pace compared to the national trend over the last year. The value of South Australian retails sales rose by 2.1 per cent over the 12 months to July 2019, whereas national retail sales rose by 2.4 per cent.

Looking more closely the results for July, there were quite divergent outcomes across sectors in South Australia. There were solid increases in turnover for household goods retailing (0.4 per cent) and clothing, footwear and personal accessory retailing (0.3 per cent). On the other hand, sales for food retailing were flat, while there were falls for cafes, restaurants and takeaway food services (down 0.4 per cent) and department stores (down 0.1 per cent).

Note:    ¹ SFD comprises all final expenditures made by households, business and government. It excludes interstate and overseas exports and changes in inventories, so is an incomplete measure of economic production.