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5206.0 - Australian National Accounts: National Income, Expenditure and Product, Jun 2007  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 04/09/2007   
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ANALYSIS AND COMMENTS


GROWTH RATES IN GDP

In seasonally adjusted terms, GDP increased by 0.9% in the June quarter. Through the year growth in trend terms was 4.4% (4.3% seasonally adjusted) the highest since June quarter 2004. In both trend and seasonally adjusted terms, Non-farm GDP increased by 5.2% through the year which is the highest through the year trend growth since December quarter 1994.

Percentage changes, Volume measures
Graph: Percentage changes, Volume measures



On the expenditure side, the growth (in trend volume terms) over the past four quarters was driven by Household final consumption expenditure (contributing 2.4 percentage points to GDP growth), Private Non-dwelling construction investment (1.1 percentage points) and Private Machinery and Equipment investment (0.7 percentage points). Offsetting the growth during the past four quarters was a strong rise in Imports of goods and services (detracting 2.6 percentage points).


On the production side, the strongest contributing industries to GDP growth (in trend volume terms) over the past four quarters have been Construction (0.7 percentage points) and Property and business services (0.6 percentage points), Manufacturing and Finance and insurance (each 0.5 percentage points) and Mining and Transport and storage (each 0.4 percentage points). Detracting from growth was Agriculture which took 0.6 percentage points from GDP growth over the past four quarters.

Selected Industries Contribution to growth, Jun 06 to Jun 07 - Trend
Graph: Selected Industries Contribution to growth, Jun 06 to Jun 07—Trend




REAL GROSS DOMESTIC INCOME

The real purchasing power of income generated by domestic production can be affected by changes in import and export prices. Real gross domestic income adjusts the chain volume measure of GDP by the Terms of trade. The graph below provides a comparison of quarterly movements in trend GDP (volume measure) and Real gross domestic income. During the June quarter, trend Real gross domestic income increased by 1.4%, compared to the increase in the trend volume measure of GDP of 1.2%, reflecting a 1.0% improvement in the trend Terms of trade. Growth in Real gross domestic income over the past 4 quarters was 5.8% compared to 4.4% growth in GDP.

Percentage changes: Trend
Graph: Percentage changes: Trend




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 strong growth in the Terms of trade since December quarter 2003 (up 35.3%) reflects growth of approximately 40% in export prices and relatively flat import price growth over the period. The June quarter 2007 saw a 1.0% increase in trend terms to the highest Terms of trade index since September quarter 1959. In seasonally adjusted terms, the Terms of trade fell 0.1%, the first fall since December quarter 2001.

Trend, (2004-05 = 100)
Graph: Trend, (2004–05 = 100)




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 June quarter, trend Real net national disposable income increased by 1.5%, with growth over the past 4 quarters at 5.3% compared to 4.4% for GDP.

Percentage changes: Trend
Graph: Percentage changes: Trend




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 the June quarter, Net exports, in trend terms, detracted 0.5 percentage points from GDP growth. In seasonally adjusted terms, Net exports detracted 0.2 percentage point, down from the 0.4 percentage points detraction in the previous quarter.

Net Exports Contribution to growth, Volume measures
Graph: Net Exports Contribution to growth, Volume measures




HOUSEHOLD SAVING RATIO

The Household saving ratio was 0.1 in both trend and seasonally adjusted terms in June quarter 2007 implying that Household net disposable income and Household final consumption expenditure are approximately equal.


Household saving cannot be directly measured. Rather 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 please refer to Spotlight on National Accounts - Household Saving Ratio (cat. no. 5202.0).

Household saving ratio, Current prices
Graph: Household saving ratio, Current prices




PRICES IN THE NATIONAL ACCOUNTS

The National Accounts provides information on price movements within the various expenditure components of GDP. Through the year to June quarter 2007 growth in the Household final consumption expenditure (HFCE) chain price index in original terms was 2.2%, compared to 2.1% growth over the same period in the Consumer Price Index (CPI). 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 reweighted, 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 Machinery & equipment fell 1.6% during the quarter and is now 3.6% lower than in June quarter 2006. The Non-dwelling construction chain price index increased 1.2% during the June quarter and is now 5.5% higher than in June quarter 2006. The Domestic final demand chain price index, encompassing changes in both consumption and investment prices, increased by 0.8% in the quarter and 2.3% through the year.


There was no growth in Export prices during the quarter but they rose 1.4% through the year. Import prices fell 0.1% during quarter and were down 4.5% through the year.

Selected Expenditure chain price indexes, Percentage changes: Original
Graph: Selected Expenditure chain price indexes, Percentage changes: Original




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 as such have a significant impact on household consumption, investment and saving decisions.


In June quarter 2007, seasonally adjusted Compensation of employees grew by 2.7%, while the seasonally adjusted number of employees recorded in the Labour Force survey grew by 0.5%. Average compensation per employee increased by 2.2%.


Through the year growth in seasonally adjusted average compensation per employee was 5.5% compared to 4.0% growth over the same period in the total hourly rates of pay, excluding bonuses as published in Labour Price Index, Australia (cat. no. 6345.0). It should be noted that the conceptual bases for these two wage measures are different.


In trend terms, Hours worked increased by 0.1% during the June quarter with through the year growth at 1.5%. In the Market sector (see Glossary for definition) Hours worked fell by 0.3% during the June quarter with through the year growth at 1.2%.


In the June quarter 2007, GDP per hour worked (in trend terms) rose 1.1%, the same as in the March quarter. Market sector GDP per hour worked (in trend terms) rose 1.2% in the June quarter 2007 and 3.0% 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, employment and hours worked. Growth in both employment and hours worked has slowed over the past two quarters, in contrast to increasing growth in GDP. The relationship between GDP, employment and hours worked is complex and has attracted a great deal of interest. The ABS has produced a number of pieces of analysis which investigate the relationship in detail. For more information please refer to Leading Indicators of Employment (Feature Article) 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).

Percentage changes, Trend
Graph: Percentage changes, Trend



Unit labour costs (ULC) represent a link between productivity and the cost of labour in producing output. A 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 a real ULC indicates that labour cost pressures exist.


In the June quarter 2007, the trend Real ULC increased by 0.8% while the trend Non-farm Real ULC increased by 0.7%. The Non-farm measure is generally preferred as it removes some of the fluctuations associated with Agriculture.


Real Unit Labour Costs
Graph: National Accounts Labour Market Indicators



CHANGES IN INVENTORIES

Changes in inventories can have a significant impact on growth in GDP in any particular quarter. 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 Change in inventories contribution to GDP growth, both in trend terms. Even in trend terms the Change in inventories contribution to GDP growth is quite volatile. The last three quarters have seen the strongest contribution, in trend terms, since 2003.

Inventories and GDP: Trend
Graph: Inventories and GDP: Trend



Change in inventories can be disaggregated into a number of industries. The graph below shows the three largest inventory holding industries, Manufacturing, Wholesale and Retail trade.


For the past two quarters Manufacturing and Wholesale have shown a build-up in inventories. Retail trade has shown a run down in the June quarter 2007.

Change in inventories, Selected industries: Trend
Graph: Change in inventories, Selected industries: Trend




UPDATE - IMPACT OF THE DROUGHT

With the addition of the June quarter data, the ABS now has the first farm estimates of the 2006-07 financial year available to assess the impact of the drought on agricultural production. A significant component of this information in 2006-07 is still based on forecasts from the June 2007 edition of the Australian Bureau of Agricultural and Resource Economics (ABARE) publication 'Australian Commodities'.


Farm GDP has fallen from $26.6b in 2005-06 to $21.5b in 2006-07, a fall of $5.1b or 19.2%. This has made a negative contribution of approximately 0.5% to GDP growth in 2006-07. Major contributors to this fall were falls in the production of wheat, barley, cotton and canola.



RELIABILITY OF CONTEMPORARY TREND ESTIMATES

Trend estimates are used throughout this publication as an alternative approach to the analysis of movements in time series data. Further 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 September quarter 2007. In the absence of any other revisions, seasonally adjusted growth of 1.2% is required in September quarter 2007 to maintain, in September quarter 2007, the trend growth of 1.2% currently estimated for the June quarter 2007.

Percentage change in GDP Chain volume measure

Trend estimate if seasonally adjusted GDP changes by the following amounts in September qtr 2007
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%

2005
March
0.8
0.8
0.8
0.8
0.8
June
1.4
0.9
0.9
0.9
0.9
September
0.5
0.8
0.8
0.8
0.8
December
0.5
0.6
0.6
0.6
0.6
2006
March
0.8
0.5
0.5
0.5
0.5
June
0.4
0.6
0.6
0.6
0.6
September
0.6
0.8
0.8
0.8
0.8
December
1.1
1.1
1.1
1.1
1.2
2007
March
1.6
1.3
1.3
1.2
1.1
June
0.9
1.2
1.2
0.9
0.6


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