ANALYSIS AND COMMENTS


GROWTH RATES IN GDP

In seasonally adjusted terms, GDP increased 1.1% in the March quarter, through the year GDP growth was 3.5%.

On the expenditure side, the increase this quarter (in seasonally adjusted volume terms) was driven by Net Exports (1.4 percentage points), Final consumption expenditure (0.3 percentage points) and Total Private Gross Fixed Capital Formation (0.2 percentage points). These increases were partially offset by decreases in Changes in Inventories (-0.6 percentage points) and Public gross fixed capital formation (-0.2 percentage points).

From the March quarter 2013 to March quarter 2014, Mining (1.1 percentage points), Financial and insurance services (0.6 percentage points) and Construction (0.4 percentage points) industries were the largest contributors to total trend growth of 3.2%. Manufacturing and Professional, scientific and technical services each detracted 0.2 percentage points 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 seasonally adjusted terms, during the March quarter, Real gross domestic income rose by 0.8%, while the volume measure of GDP increased by 1.1%, the difference reflecting a decrease of 1.2% in the Terms of trade.

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 1.2% in seasonally adjusted terms in the March quarter following an increase of 1.0% in the December quarter. From the March quarter 2013 to the March quarter 2014 the Terms of trade has fallen 3.8%.

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 March quarter, seasonally adjusted Real net national disposable income rose by 1.3%. Growth over the past 4 quarters was 2.2% compared with 3.5% 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 contributed 1.4 percentage points to GDP growth in the March quarter 2014. Net exports contributed 0.3 percentage points in the December quarter 2013. In the March quarter 2014 Exports of goods and services increased 4.8% and Imports of goods and services fell 1.4%.

HOUSEHOLD SAVING RATIO

The Household saving ratio was 9.7% in seasonally adjusted terms in the March quarter 2014. The trend estimate for the Household saving ratio was also 9.7% in the March quarter 2014.

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 increased 0.4% in the March quarter.

The Chain price index for Household final consumption expenditure (HFCE) was 0.8% in the March quarter 2014, compared with 0.6% 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 March quarter. This increase was driven by an increase in the Chain price index for New engineering construction (0.6%) and Alterations and additions (0.6%).

The Domestic final demand Chain price index, encompassing changes in both consumption and investment prices, increased 0.5% this quarter and 2.6% through the year.

The Export Chain price index rose 3.0% during the quarter and 6.3% through the year. The Import Chain price index increased 3.0% in the March quarter and 9.5% 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 March quarter 2014, seasonally adjusted Compensation of employees increased 0.7%, and the seasonally adjusted number of employees recorded in the Labour Force survey grew 0.2%. Average compensation per employee increased 0.5%.

In trend terms, Hours worked rose 0.3% during the quarter and 1.0% through the year. In the Market sector (see Glossary for definition) Hours worked were flat over the quarter and rose 0.3% through the year. In the March quarter 2014, GDP per hour worked (in trend terms) rose 0.6% and 2.1% through the year. Market sector Gross value added (GVA) per hour worked (in trend terms) rose 0.8% in the quarter and 2.4% 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 March quarter 2014, trend Real ULC fell 1.1% and the trend Non-farm Real ULC fell 1.0%. 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, Mining, Manufacturing, Wholesale trade and Retail trade inventories were run down in the March quarter 2014.

GROWTH IN MINING

The Mining industry accounted for around 80% of growth in GDP in the March quarter 2014. Gross value added by Mining experienced strong positive growth in seasonally adjusted terms. This note explains how seasonally adjusted figures are produced and provides further context to the March quarter 2014 outcomes. All figures used below are in chain volume measure terms.

Seasonal analysis is used in the national accounts to remove seasonal effects, such as the effects of weather. This allows comparability of each quarter on a seasonally adjusted basis. The national accounts are adjusted using the concurrent seasonal analysis method. This method uses the most recent data to estimate seasonal factors for the current and previous quarters. Concurrent seasonal analysis eliminates the need to predict forward seasonal factors and produces a series with a high level of accuracy and consistency.

The removal of seasonal effects produces a series which reflects the extent to which movements within a period diverge from the usual movement in the period. For Mining, there is usually a large fall in original terms in March quarter, driven in a large part by weather events. This is shown in Table 1. Mining production in the March quarter 2014 experienced a much smaller fall than usual of 1.6% in original terms. The Mining industry was less affected by heavier rainfall and cyclonic events than it usually is in the March quarter 2014. The stronger than usual growth in the period is reflected in a high seasonally adjusted figure of 8.6%. Table 1 presents the growth in the Mining industry for March quarters in both original and seasonal terms for comparison.

MINING GROSS VALUE ADDED, (% change)
	Mar 2011	Mar 2012	Mar 2013	Mar 2014
Original	-11.7	-8.3	-8.1	-1.6
Seasonally Adjusted	-2.2	1.4	1.4	8.6

Table 2 illustrates the contribution of gross value added by Mining to GDP this quarter. Values are in seasonally adjusted terms, percentage changes. The table shows that Mining is a significant contributor to GDP growth this quarter. GDP excluding Mining grew 0.3% compared to total GDP growth of 1.1%.

MINING CONTRIBUTION TO GDP GROWTH, Seasonally Adjusted
	Sep 2013	Dec 2013	Mar 2014
GDP %	0.6	0.8	1.1
Contribution to Growth from Mining percentage points	0.2	0.1	0.9

In addition to the seasonal effects, both Oil and gas and Coal production recorded positive growth in original terms. Part of the increase in both Oil and gas and Coal production was realised through expansion of current Mining operations.

For more information on seasonal adjustment and other techniques used in compiling the National Accounts please refer to the Australian System of National Accounts: Concepts, Sources and Methods (cat. no. 5216.0).


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 June quarter 2014. In the absence of any other revisions, seasonally adjusted growth of 0.8% is required in June quarter 2014 to maintain, in June quarter 2014, the trend growth of 0.8% currently estimated for the March quarter 2014.

PERCENTAGE CHANGE IN GDP CHAIN VOLUME MEASURES
				Trend estimates if seasonally adjusted GDP changes by the following amounts in JUN QTR 2014
		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%
2011
	September	1.2	1.1	1.1	1.1	1.1
	December	0.9	1.1	1.1	1.1	1.1
2012
	March	1.1	0.9	0.9	0.9	0.9
	June	0.6	0.8	0.8	0.8	0.8
	September	0.7	0.6	0.6	0.6	0.6
	December	0.4	0.5	0.5	0.5	0.5
2013
	March	0.3	0.5	0.5	0.5	0.5
	June	0.9	0.6	0.6	0.6	0.6
	September	0.7	0.8	0.8	0.8	0.9
	December	0.8	0.9	0.9	0.8	0.7
2014
	March	1.1	0.8	1.0	0.7	0.4