ANALYSIS AND COMMENTS


GROWTH RATES IN GDP

In seasonally adjusted terms, GDP increased 0.6% in the December quarter, through the year GDP growth was 3.0%.

On the expenditure side, the increase this quarter (in seasonally adjusted volume terms) was driven by Final consumption expenditure (0.5 percentage points) and Changes in inventories (0.2 percentage points). These increases were partially offset by Total gross fixed capital formation (-0.2 percentage points).

From the December quarter 2014 to the December quarter 2015, Mining (0.4 percentage points), Financial and insurance services (0.4 percentage points), Construction (0.3 percentage points), Public administration and safety (0.3 percentage points), and Health care and social assistance (0.3 percentage points) industries were the largest contributors to total trend growth of 2.8%. Manufacturing (-0.2 percentage points) was the largest detractor in trend terms.


REAL GROSS DOMESTIC INCOME

The real purchasing power of income generated by domestic production is affected by changes in import and export prices. Real gross domestic income adjusts the chain volume measure of GDP for the Terms of trade effect. The graph below provides a comparison of quarterly movements in trend GDP (volume measure) and Real gross domestic income. In trend terms, during the December quarter, Real gross domestic income increased by 0.1%, while the volume measure of GDP increased by 0.7%, the difference reflecting a decrease of 3.0% in the Terms of trade in trend terms.

TERMS OF TRADE

The Terms of trade represent the relationship between the prices of exports and imports. An increase (decrease) in the Terms of trade reflects export prices increasing (decreasing) at a faster rate than import prices. The Terms of trade decreased 3.2% in seasonally adjusted terms in the December quarter following a decrease of 2.4% in the September quarter. From the December quarter 2014 to the December quarter 2015 the Terms of trade has fallen 12.0%.

REAL NET NATIONAL DISPOSABLE INCOME

A broader measure of change in national economic well-being is Real net national disposable income. This measure adjusts the volume measure of GDP for the Terms of trade effect, Real net incomes from overseas and Consumption of fixed capital (see Glossary for definitions). The graph below provides a comparison of quarterly movements in trend GDP (volume measure) and Real net national disposable income. During the December quarter, trend Real net national disposable income decreased by 0.3%. Through the year Real net national disposable income fell 1.2% compared with an increase of 2.8% for GDP.

NET EXPORTS CONTRIBUTION TO GROWTH

Net exports represents the difference between exports and imports of goods and services. Net exports detract from GDP growth when the change in the volume of imports is greater than the change in the volume of exports. In seasonally adjusted terms, Net exports did not contribute to GDP growth in the December quarter 2015, Exports of goods and services contributed 0.1 percentage points and Imports of goods and services detracted 0.1 percentage points.

HOUSEHOLD SAVING RATIO

The Household saving ratio was 7.6% in seasonally adjusted terms in the December quarter 2015. The trend estimate for the Household saving ratio was 8.0% in the December quarter 2015.

Household saving is not measured directly. It is calculated as a residual item by deducting Household final consumption expenditure from Household net disposable income. As the difference between the two aggregates is relatively small, caution should be exercised in interpreting the Household saving ratio in recent years, because major components of household income and expenditure may be subject to significant revisions. The impact of these revisions on the saving ratio can cause changes in the direction of the trend. For more information on the Household saving ratio, see Spotlight on National Accounts, 2007-Household Saving Ratio (cat. no. 5202.0).

PRICES IN THE NATIONAL ACCOUNTS

The GDP Chain price index fell 0.7% in the December quarter.

The Chain price index for Household final consumption expenditure (HFCE) increased 0.4% in the September quarter 2015, aligning with 0.4% for the Consumer Price Index (CPI) over the same period. The HFCE Chain price index is the National Accounts measure most directly comparable to the CPI. However, it should be noted that the conceptual bases for these two price measures are different. The most important differences are:

• the frequency with which each index is re-weighted;
• the range of lower level indexes contributing to each index; and
• the concepts and treatment of household expenditure, particularly in respect of home ownership costs.

The Chain price index for Private gross fixed capital formation increased 0.3% in the December quarter. Both Dwelling and Non-dwelling chain prices grew by 0.5%, this was partially offset by flat prices for Machinery and equipment.

The Domestic final demand Chain price index, encompassing changes in both consumption and investment prices, increased 0.4% this quarter and 2.2% through the year.

The Export Chain price index declined by 4.3% during the quarter and fell 8.7% through the year. The Import Chain price index remained flat in the December quarter and increased 4.6% through the year.

NATIONAL ACCOUNTS LABOUR MARKET INDICATORS

The National Accounts dataset contains a number of labour market related indicators. Labour costs are the costs incurred by employers in the employment of labour. These costs include wages and salaries, bonuses, paid leave, superannuation, taxes on employment, training and recruitment costs, and fringe benefits (included in wages and salaries in the national accounts). They are of particular interest as they impact on the competitiveness of organisations, employers' willingness to employ and individuals' willingness to supply labour.

Labour costs are reflected in household income via Compensation of employees and therefore have a significant impact on household consumption, investment and saving decisions.

In the December quarter 2015, seasonally adjusted Compensation of employees increased 0.4%, and the seasonally adjusted number of employees recorded in the Labour Force survey grew 1.0%. Average compensation per employee decreased 0.6%.

In trend terms, Hours worked rose 0.5% over the quarter and increased 2.4% through the year. In the Market sector (see Glossary for definition), Hours worked increased 0.4% over the quarter and rose 1.1% through the year. In the December quarter 2015, GDP per hour worked (in trend terms) rose 0.2% over the quarter and 0.4% through the year. Market sector Gross value added (GVA) per hour worked (in trend terms) rose 0.2% over the quarter and 1.6% through the year. Estimates of GDP per hour worked are commonly interpreted as changes in labour productivity. However, it should be noted that these measures reflect not only the contribution of labour to changes in production per hour worked, but also the contribution of capital and other factors (such as managerial efficiency, economies of scale, etc.).

The graph below presents quarterly growth rates in trend GDP and hours worked. The ABS has produced analysis concerning the relationship between GDP and hours worked. For more information please refer to Leading Indicators of Employment (Feature Article in Australian Economic Indicators (cat. no. 1350.0, April 2004) and the Research Paper: Analysing the Terms of Trade Effect on GDP and Employment in the Presence of Low Real Unit Labour Costs (cat. no. 1351.0.55.014).

Unit labour costs (ULC) represent a link between productivity and the cost of labour in producing output. Nominal ULC measures the average cost of labour per unit of output while a Real ULC adjusts the nominal ULC for general inflation. Positive growth in real ULC indicates that labour cost pressures exist. In the December quarter 2015, trend Real ULC increased 0.4% and the trend Non-farm Real ULC decreased 0.1%. The Non-farm measure is generally preferred as it removes some of the fluctuations associated with Agriculture.

CHANGES IN INVENTORIES

Changes in inventories can have a significant impact on growth in quarterly GDP. A positive change in inventories can be seen as production increasing at a faster rate than consumption but the exact reasons underlying changes in inventories can be far more complex. For example, firms may run up or run down inventories in anticipation of future sales, supply constraints could affect inventories, or firms may under or over estimate sales in a particular period.

The graph below shows GDP growth and the Changes in inventories contribution to GDP growth, both in trend terms. Even in trend terms the Changes in inventories contribution to GDP growth is quite volatile.

Changes in inventories can be disaggregated into a number of industries. The graph below shows the four largest inventory holding industries, Mining, Manufacturing, Wholesale trade and Retail trade. In seasonally adjusted terms, Manufacturing, Wholesale trade and Mining were run down in the December quarter 2015, while Retail trade experienced a build-up.

INCOME ACCOUNTS

The National income account shows how Gross disposable income is used for Final consumption expenditure and the Consumption of fixed capital (depreciation), with the balance being the nation's net saving. In the December quarter 2015, National net saving relative to Net national disposable income was 5.4% in trend terms.

The sectoral income accounts are disaggregations of the National income account, and record for each institutional sector its net income arising from production, property income and transfers from other sectors, and its uses of income. The difference between income and use of income is Net saving. In the December quarter 2015, Net saving for Non-financial corporations was -$5.2b in trend terms. Financial corporations net saving was $6.7b. General government was -$5.1b while Household net saving was $20.5b.

RELIABILITY OF CONTEMPORARY TREND ESTIMATES

Trend estimates are used throughout this publication to analyse movements in time series data. Details regarding the procedures used to estimate the trend series are described in the Explanatory Notes (paragraphs 13 - 17) and in Information Paper: A Guide to Interpreting Time Series-Monitoring Trends, 2003 (cat. no. 1349.0). Potential revisions to trend estimates can be indicated by showing the effects of particular changes in seasonally adjusted estimates that might occur in the next quarter. The table below shows the trend estimates for the last ten quarters and the values to which they would be revised if the given movements in seasonally adjusted GDP actually occurred in March quarter 2016. For example, in the absence of any other revisions, for December quarter trend GDP to remain at 0.7%, December quarter seasonally adjusted GDP would need to grow by 0.5%.

PERCENTAGE CHANGE IN GDP CHAIN VOLUME MEASURES
				TREND ESTIMATE IF SEASONALLY ADJUSTED GDP CHANGES BY THE FOLLOWING AMOUNTS IN MAR QTR 2016
		Seasonally adjusted GDP as published in table 2	Trend GDP as published in table 1	Grows by 1.0%	No change	Falls by 1.0%
2013
	June	0.8	0.5	0.5	0.5	0.5
	September	0.5	0.7	0.7	0.7	0.7
	December	0.8	0.8	0.8	0.8	0.8
2014
	March	0.9	0.7	0.7	0.7	0.7
	June	0.5	0.6	0.6	0.6	0.6
	September	0.4	0.5	0.5	0.5	0.5
	December	0.4	0.5	0.5	0.5	0.5
2015
	March	0.9	0.6	0.6	0.6	0.6
	June	0.3	0.7	0.7	0.8	0.8
	September	1.1	0.7	0.8	0.7	0.6
	December	0.5	0.7	0.8	0.5	0.3