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ANALYSIS AND COMMENTS
Growth over the past 4 quarters has been driven by a continued pattern of strong household final consumption expenditure (up 4.4% from September quarter 2002) and the very strong growth of investment in machinery and equipment (up 16.2% since September quarter 2002). Offsetting these strong contributions was a 12.6% increase in imports of goods and services and a 3.3% fall in exports of goods and services since September quarter 2002. On the industry side the main impact through 2002-03 was the decline in agricultual production but this turned around in the September quarter 2003, with agriculture industry gross value added rising 17.3% for the quarter and contributing 0.4 percentage points to quarterly growth. Construction, communication services, finance and insurance, retail trade, and accommodation, cafes and restaurants are the industries that have shown the strongest growth in the four quarters to September quarter 2003.
Impact of 2003-04 farm season on Australian production
Australia experienced a severe drought in 2002-03 which had a significant impact on the growth of the Australian economy. This impact has been described in a number of feature articles, most recently in the June quarter 2003 release of this publication.
More favourable weather conditions in recent months indicate improved prospects for the agriculture industry in 2003-04. The ABS has calculated estimates of the likely impact of the recovery on the agricultural production based on the September 2003 forecasts from the Australian Bureau of Agriculture and Resource Economics (ABARE), published on 22 September 2003. Initial estimates of the impact of the recovery were published in the October 2003 issue of Australian Economic Indicators (cat.no.1350.0) (AEI).
The following table shows, in seasonally adjusted chain volume terms, quarterly data for 2002-03 and forecasts for 2003-04. The forecasts for 2003-04 have been revised since the AEI article due mainly to the seasonal reanalysis. The table shows a much more marked increase in agricultural outputs than in agricultural inputs. The difference between the outputs and inputs is gross agricultural product at market prices. The expected rise in the estimates of gross agricultural product at market prices between 2002-03 and 2003-04 represents the direct impact on GDP of the recovery following the 2002-03 drought. Gross agricultural product at market prices is expected to increase in chain volume terms from $18,541 million in 2002-03 to $23,629 million in 2003-04, a rise of $5,088 million or 27.4%. If this eventuates it will make a positive contribution of 0.7 percentage points to the growth in the volume of GDP between 2002-03 and 2003-04.
The graph below, in seasonally adjusted chain volume terms, shows the projected outputs for five major categories of agricultural output. Most of these data are based on ABARE forecasts. The improved performance of the farm sector in 2003-04 is expected to be driven by cropping industries, with the rise in the output of cereals forecast to more than double in 2003-04.
For a complete picture of the impact of the improved farm production on GDP, both the direct and indirect effects of the sector must be considered. Indirect effects can be put into two categories. The first category is the effect on downstream industries, principally transport, wholesale trade and the manufacturing of products from agricultural outputs. The second category comprises the multiplier effects arising from the increased value of production by the agriculture industry and its downstream industries. This has two elements. One arises from any increase in the inputs of these industries which leads to an increase in the production of other Australian industries. The other arises from any increase in factor income of the agriculture and downstream industries that leads to a rise in final expenditures by farmers and others who draw an income from these industries. These indirect effects are described in more detail in a feature article published in the September quarter 2002 issue of this publication.
Real Gross domestic income
A measure of the real purchasing power of income generated by domestic production is the chain volume measure of GDP adjusted for the terms of trade effect, which is referred to as real gross domestic income (see Glossary). The graph below provides a comparison of quarterly movements in trend GDP (chain volume measure) and real gross domestic income. During the September quarter, trend real gross domestic income increased by 1.0%, compared to the increase in the trend chain volume measure of GDP of 0.7%, reflecting an improvement in the terms of trade. Trend and seasonally adjusted estimates of real gross domestic income are shown in tables 1 and 2.
The graph below shows the trend terms of trade over the past fourteen years.
Real net national disposable income
A broader measure of changes in national economic well-being is real net national disposable income. This measure adjusts the chain volume measure of GDP for the terms of trade effect, real net incomes from overseas and consumption of fixed capital (see Glossary). The graph below provides a comparison of quarterly movements in trend GDP (chain volume measure) and real net national disposable income. During the September quarter, trend real net national disposable income increased by 0.9%, while the trend chain volume measure of GDP increased 0.7%. Trend and seasonally adjusted estimates of real net national disposable income are shown in tables 1 and 2.
Household saving ratio
In both trend and seasonally adjusted terms the household saving ratio (see Glossary for definition) was negative in the September quarter 2003 implying that household consumption was greater than household disposable income. In trend terms the ratio was -2.5% in the September quarter and in seasonally adjusted terms it was -2.2%. The following graph presents the trend and seasonally adjusted estimates of the household saving ratio, which are shown in tables 1 and 2.
The deterioration in the saving ratio in recent quarters has been driven by both a slow down in the rate of growth of disposable income and the continued strength of household consumption expenditure. The movement in disposable income has been affected by the very weak income results for the farm sector arising from the drought. The impact occurs because the household sector defined in the national accounts includes unincorporated businesses and therefore includes most farm businesses. Consequently, most farm income (included as a significant component of 'gross mixed income' ) is also part of total household income. Although seasonally adjusted household saving has been negative in the past six quarters, net national saving has been positive over the same period. The net national saving ratio in the September quarter was 3.6% in seasonally adjusted terms.
Notable downward revisions to the household saving ratio have occurred since the June quarter 2003 release. Most of these revisions were reflected in the annual publication, Australian System of National Accounts, 2002-03 (cat. no. 5204.0). In particular, downward revisions were made to gross mixed income and upward revisions were made to interest payable on dwellings. Both of these revisions had a negative effect on household disposable income. Since the release of the annual publication further revisions have been made to 2002–03 data which have increased the household saving ratio to a limited extent. These revisions are a downward revision to compensation of employees and an upward revision to current transfers to non-profit institutions.
Caution should be exercised in interpreting the household saving ratio in recent years, because major components of household income and expenditure may still be subject to significant revisions. The impact of these revisions on the saving ratio can cause changes in the apparent direction of the trend.
Compensation of employees
In the September quarter 2003, seasonally adjusted compensation of employees grew by 1.0%, while the number of employees recorded in the Labour Force survey grew by 0.2%. Thus, average compensation per employee increased by 0.8%. This follows growth of 1.8% and 0.1% in the previous two quarters. The growth rate between 2001-02 and 2002-03 was 3.7% which compares with 3.7% growth in the Wage Cost Index (cat.no.6345.0) and 4.3% growth in average weekly all employees, total earnings (Average Weekly Earnings (cat.no.6302.0)). (These three average wage measures have different conceptual bases.)
Following the introduction of the new method for calculating compensation of employees in March quarter 2002 the estimation of average earnings is not as direct as under the previous approach and hence the usual decomposition of national accounts estimates of compensation of employees into an employment component and an average earnings component may be of lower quality.
Private non-farm inventories to total sales ratio
In trend current price terms, the book value of private non-farm inventories increased by $730 million (0.8%) in the September quarter 2003, while total sales fell by $422 million (-0.4%). Consequently, the inventories to total sales ratio (see Glossary for definition) rose from 0.782 in the June quarter 2003 to 0.792 in the September quarter 2003. The following graph presents the ratio of private non-farm inventories to total sales over the last fourteen years.
Imports to domestic sales
The imports to domestic sales ratio (see Glossary for definition), trended and at current prices, fell from 0.374 in the June quarter 2003 to 0.365 in the September quarter 2003. This reflects a fall of 1.4% in imports of goods accompanied by a 0.7% rise in domestic sales. The following graph presents the ratio of imports to domestic sales over the last fourteen years.
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 the ABS Information Paper: A Guide to Interpreting Time Series - Monitoring Trends, 2003 (cat.no.1349.0), which was released on 4 August 2003.
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 few quarters and the values to which they would be revised if the notional movements in seasonally adjusted GDP actually occurred in December quarter 2003. Seasonally adjusted growth of 0.4% is required in December quarter 2003 to maintain, in December quarter 2003, the trend growth of 0.7% currently estimated for September quarter 2003.
Revisions since the June quarter 2003 release
Revisions were made to a range of national accounts estimates in the annual publication Australian System of National Accounts, 2002-03 (cat.no.5204.0) which was released on 5 November 2003. Further revisions have been made to the 2002–03 estimates in this release, notably to seasonally adjusted series following the annual seasonal reanalysis that is completed for the September quarter release. The bulk of the revisions to various series were reflected in the annual publication and resulted from the availability of more up to date source data and the incorporation of new supply and use benchmarks for 1999-00, 2000-01 and 2001-02. The balancing of the supply and use tables ensures that the three measures of GDP are consistent but inevitably some components are revised as a result of the balancing process.
Compared to the estimates released in the June quarter 2003 issue of this publication, the level of GDP in current prices was revised down in 1999-00 by $2.6 billion and upwards in the following three years by $1.8 billion, $2.8 billion, and $1.8 billion respectively. This impacted on growth rates to a small extent. In chain volume terms GDP was revised downwards in 1999-00 by 0.2% and upwards in the following three years by 0.2%, 0.1% and 0.1% respectively. A number of components of GDP were revised consistent with these aggregate movements.
On the income side of GDP the gross operating surplus of private non-financial corporations and gross mixed income of unincorporated enterprises were the most heavily revised estimates reflecting both the incorporation of new source data from the Australian Taxation Office and the effect of supply and use table balancing. A large revision to taxes less subsidies on production and imports was made in 2001–02 because of the incorporation of updated taxation receipts information and revised estimates of subsidies.
On the production side of GDP the largest revisions were in the Agriculture, forestry and fishing industry where a review of methods indicated a degree of understatement in the supply and use table benchmarks. In movement terms there were no large contributors to the overall revisions.
On the expenditure side of GDP the main aggregate that was impacted by the balancing process was gross fixed capital formation on machinery and equipment. Upward revisions to the current price estimates were made in 2000-01 and 2001-02 as a result of confronting the supply and demand of the products in scope of this aggregate. Upward revisions were also made to the chain volume estimate of capital formation on machinery and equipment although the extent of the revision was noticeably smaller in 2000-01. This reflects a reassessment of the contributions of particular asset types which each showed different price movements in that year in particular the weight attributed to imported products. The analysis of price movements in 2000-01 is somewhat complex as it was the year in which the new tax system was introduced.
In the compilation of the September quarter accounts, additional information has been included that has revised estimates in 2002-03. Of particular note is a downward revision to compensation of employees following the incorporation of up to date information on fringe benefits tax payments. These data are the key indicator of movements in the payments in kind component of wages and salaries.
In addition, there have been significant revisions to the consumption of fixed capital and increase in assets with marketing organisations in agricultural income. The former is due to the annual recompilation of livestock capital stock estimates and the latter is due to the correction of a compilation error.
There have also been some notable revisions to the household saving ratio - see page 11 for details.
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