Treasury data shows QLD economy recovery picking up

The QLD Treasury data for State Accounts for the final quarter of 2016 shows the economy picking up nicely.

Whilst the ABS only produce Gross State Product data on an annual (financial year) basis, the Treasury produce their own quarterly estimates. These show GSP rose by 0.9% q/q after the third quarter numbers were also revised stronger (+0.9% from +0.5% original). This equates to an annual increase of 2.1% (after Q3 was revised up from +1.9% to +2.2%).

Even State Final Demand (which does not include the strong trade sector) showed improvement (+0.4% q/q) with the annual change moving into positive territory (+0.7%) for the first time since Sept 2014. Although we should note that the ABS estimate is just a 0.4% increase (also the first positive plot since Sept 2014).

Household expenditure rose 2.6% annually, although this is the weakest annual increase for this sector since June 2015. More encouragingly Private Business Investment rose 0.5% for the quarter, although a decline in Private Dwellings Investment saw total Private Sector Investment decline by 0.3%. Nevertheless, the annual change in Private Investment (-6.7%) is the best result since Sept 2014.

Queensland State Accounts show good growth; but it’s slowing

Friday saw the (rather delayed) release of the September quarter Queensland State Accounts from Treasury, and they appear to have slipped under the radar somewhat. While the ABS produce Gross State Product (GSP) data only on an annual basis for the June quarter, the QLD Treasury produce quarterly estimates. We have previously seen some disparity in these two measures, although new revisions to the Treasury data address much of that disparity from the 2015-16 data.

Firstly, if we consider the data for the 2015-16 year. When the original data for the June quarter was released by the Treasury they showed a GSP growth rate of 3.3% over the course of the year. The ABS data, released a few weeks later, had that growth pegged at just 2.0%. We wrote at the time (see here) about the reasons for the discrepancy and suggested that the figure was likely to be closer to 2.6% for the year. We are therefore not at all surprised to see revisions in the Treasury data which have taken the annual figure for 2015-16 down to growth of 2.4% (which is the same rate as national Trend GDP growth for that quarter) .

And so to the latest September quarter (and the first for the 2016-17 financial year). The annual GSP growth rate from the Treasury data has dipped to 1.9% (compared to a national GDP Trend growth rate of 2.6%). On a quarter on quarter basis the Q2 data was revised down to +0.4% (from +1.2%) and Q3 is up 0.5%. Unfortunately the Treasurer’s media release on Friday (see here) said that this 0.5% q/q growth was “substantially stronger than the rest of Australia with only 0.2 per cent“; apparently without realising that the national Q3 data has already been revised by the ABS to show a growth rate of 0.4%.

So what we can certainly see is that the recovery in Queensland is well in place. GSP has now increased for each of the past 8 quarters although, at an average of just over +0.5% q/q over that period, we are clearly a long way from the mining investment fueled boom-times.

Net exports have been, and will continue to be, a huge part of that recovery story. Five years ago net exports were deducting some $35 bn per year from our GSP; today the net export position is in balance over the year (actually a tiny $10 million deficit). Given that annual GSP for Queensland is in the order of $317 bn we can see that a $35 bn swing in net exports has played a huge role.

Household consumption (the largest single component of GSP) continues to move ahead nicely; up 2.8% for the year to Sept 2016. It’s also encouraging to see private investment improving. The annual slide in private CAPEX has slowed to be down just 10.1% (significantly better than the -16.7% ann seen in Dec 2015); the quarterly data has shown increases for the past 2 quarters (although business investment is up only for this quarter it is the first quarterly increase in 4 years) .

Recession avoided (again) as GDP jumps

As expected, the Australian economy once again avoided a technical recession (two consecutive quarters of negative GDP) with a better-than-expected increase GDP of 1.1% for the 4th quarter of 2016. This took year on year growth to 2.4% (up from an upwardly revised +1.9% in Q3) for an annual growth over 2016 of 2.5% (unchanged from Q3).

The main drivers of growth were household consumption (which was up 0.9% q/q and added 0.5 ppts) and exports which added another 0.5 ppts. Also encouraging was the fact that private fixed capital formation turned positive for the first time in the year and added 0.2 ppts.

In Queensland things also turned more positive. State Final Demand was up 0.9% q/q (+1.8% y/y) which was the state’s best result since the final quarter of 2013. On an annual basis over 2016 State Final Demand was up 0.4% which is the first positive plot for this measure since the third quarter of 2014. Here too households were the main contributors with Trend growth of 0.7% q/q while private fixed capital formation was also up 0.5% q/q.

Bearing in mind that the State Final Demand figures do not account for export data, we can expect to see an even better result once the Queensland Treasury release their Gross State Product figures for the quarter given the strength of resource exports in recent quarters. However, we are still waiting on those numbers for the September quarter (with no release date set down so far) so heaven only knows when we’ll see the Q4 numbers!

The chart below makes clear the recovery in private investment that we’re seeing in QLD and the fact that total Public sector demand (from both expenditure and investment) continues to ease. The recovery we’re seeing in QLD is down to households and private sector firms investing, not the public sector.

The latest CONUS Quarterly is now available for download below.

CONUS Quarterly March 2017

Queensland Economy – how do we start 2017?

A new year, and a time to reflect on where we stand in Queensland. And as far as the pollies are concerned (while Parliament is yet to return) the emphasis appears, as ever, to be on spinning the data to make whatever point they wish. In today’s Australian we see the LNP (in the person of Deb Frecklington) claiming “more than 30,000 Queensland jobs have been shed in the past year” while the ALP (via an unnamed spokesperson) countered that the Government had “increased employment since its election” and noted that “unemployment is 5.9% now, not 6.6% where the LNP left it.

So what’s the actual picture?

Employment

The current ALP Government were elected at the end of Jan 2015 so we have considered data (where available) since Feb 2015 as representing “since the election”. On this basis by Nov 2016 (latest available data) Trend employment is up by 22,800 and the Trend unemployment rate has fallen from 6.6% to 5.9% since the election (as the ALP spokesperson said). If we consider “in the past year” to mean the 12 months to Nov 2016 then Trend employment has indeed fallen by 30,900 (as noted by Deb Frecklington). As the chart below makes clear, the Government would much rather talk about “since the election” as this includes solid growth in their first year; while the LNP will focus on the weakness of the second year.

What we also see is that employment growth has failed to keep up with growth in the working population. The unemployment rate has fallen despite this weakness because the Participation Rate (the proportion of the working aged population who are either employed or counted as unemployed) has fallen from 65.2 ion Feb 2015 to just 63.9 in Nov 2016. To put some context around that number; this means that since Feb 2015 the working aged population in QLD has grown by about 92,000 while those in the labour force are only up by 8,000. Had the Participation Rate remained where it was at the time of the election we would have an additional 50,500 people in the labour force. Without additional jobs being created that would have resulted in an unemployment rate of 7.8% by Nov 2016.

It’s also worth noting that only about a third of the new jobs created since the election have been full-time, while almost half of the jobs lost in the past year have been full-time.

Overall the employment position in Queensland is complex. It’s certainly not “strong”. The Government’s first year was “positive” (largely on the back of Public sector jobs being replaced after LNP cuts in the previous administration) and the last year has been undoubtedly “weak” although recent months show some signs of improvement.

Consumers

Recent data on Retail Trade shows Queensland doing well compared to the rest of the country, although this comes after a weaker first 18 months for the ALP Government.

Consumer confidence (as measured by the Westpac-Melbourne Institute Consumer Sentiment survey) has improved sharply over the past year after some dramatic declines in the months immediately after the 2015 poll and is up 4 points (from about neutral) since the 2015 election. This level of positivity within the consumer sector is evidenced when we consider the Household Consumption component within Gross State Product (see below).

Gross State Product

Treasury’s own quarterly data shows the State economy growing at a healthy 3.3% for the 2015-16 (although the official ABS data showed growth at a less impressive 2%…see here for a discussion about why these two numbers might be so different).

We have written extensively since the release of the most recent data on the impact of the private sector on Queensland growth, and in particular have noted the continued good contribution from Household Consumption and the return to positive territory for Private Investment (see here) so I don’t plan to repeat that here. Nevertheless it is evidently true that the real engine for growth in Queensland in recent quarters has been net exports as LNG exports come on line. State Final Demand (which ignores the international and inter-state components) is also improving and has finally turned positive again. The result for the third quarter 2015 was the strongest for Queensland since the start of 2013. (see here for full details)

Building Approvals

The over-riding theme in the residential construction sector since the election has been the surge (and then subsequent slowdown) in unit approvals.

The lag between approvals and actual construction can be lengthy, so the impact of the ramp up in approvals seen until earlier last year is still likely to be reflected in a stronger construction sector. Nevertheless, the dramatic slowdown in unit approvals (particularly evident in Brisbane and the SE) will have flow-on effects to the construction sector as we move through this year.

MYEFO downgrades growth, increases debt but sticks to 2020-21 as surplus year

Today’s Mid-Year Economic and Fiscal Outlook (MYEFO) downgrades Treasury’s forecasts of economic growth and increases the size of fiscal deficits; but it sticks to the projection in the Pre-Election Economic and Fiscal Outlook (PEFO) of the budget returning to surplus in 2021-21 (albeit a revised down, razor thin surplus). The full report is available for download here.

As we can see in the table below, while dwellings investment is expected to be stronger than originally forecast both household consumption and business investment are weaker and total private demand therefore also weaker. Total public demand is forecast somewhat stronger and this will have helped to mitigate against potentially even greater downgrades to GDP forecasts.

2016-17 2017-18
PEFO MYEFO PEFO MYEFO
GDP +2.5 +2 +3 +2.75
Household Consumption +3 +2.75 +3 +3
Dwellings Investment +2 +4.5 +1 +0.5
Business Investment -5 -6 0 0
Total Private Demand +1.5 +1 +2.5 +2.5
Total Public Demand +2.25 +3 +2 +2.25
Net Exports +0.75 -0.75 +0.75 +0.5

Treasury present their fiscal forecasts graphically with the addition of 70% and 90% confidence intervals. The graph below, taken directly from MYEFO, highlights how precarious the road to the projected surplus in 2020-21 is likely to be. The 70% confidence interval (i.e. the range within which Treasury are 70% sure the final result will land) is $25 billion for the 2016-17 result which is just 6 months away. As we move further into the future the width of these confidence intervals naturally increases. Imagine therefore how wide this 70% interval would be for the projected tiny “surplus” in 2020-21. When considering outcomes this far into the future it is safe to say that a projection of a surplus is little more than some educated guess-work and a lot of hope.

 

QLD MYFER will keep Pitt happy

The Mid-Year Fiscal and Economic Review released this afternoon (download here) will have made happy reading for QLD Treasurer Curtis Pitt. Surging coal royalties have resulted in a better than expected surplus and allowed the government to “splash some cash” ahead of a probable election next year.

Although the fiscal position has improved, the expectations for most economic indicators remain unchanged from the Budget (see below) except for employment growth which is now forecast to grow at only half the rate forecast at Budget time (without any adjustment to expected unemployment rate, this would suggest that Treasury are expecting the Participation Rate to fall further). The Gross State Product outcome for 2015-16 is given at +3,2% which was the Queensland Treasury result; the ABS came in at +2%. The Review notes this difference and we have written on the subject of the difference recently (see here).

The additional $1.5 bn in coal royalties sees the fiscal position improve sharply in 2016-17 although the increases to future years is much less. Clearly there is a realisation in Treasury that the coal wind-fall is unlikely to persist. Some of the additional revenue has been earmarked to an expansion of the regional jobs program as well as the (much talked of) $20m over 2 years for the Made in Queensland manufacturing program. The net result is a $1bn improvement to the bottom line. Pitt should be a happy man tonight.

However, there was also an acknowledgment of the two-speed economy that we have been highlighting for some time and the inclusion of additional funds for regional (and particular youth) jobs was supported by the chart below; similar to ones that we have been promoting for months.

UPDATE: More on the MYFER from Gene Tunny at Adept Economics here.

QLD State Final Demand could have been better if Public demand hadn’t fallen away

There is a certain narrative doing the rounds that although the Queensland economy is recovering it is doing so largely on the basis of booming resources exports and government spending; that the private domestic sector is struggling to add to growth. There is unquestionably a valid point being made about the impact of net exports on the state’s Gross State Product data.

However, when we consider the State Final Demand data (i.e. the domestic element) we see a rather different reality to that being suggested by some. A dig around in the Trend data released on Wednesday shows us that in fact the Private sector has certainly been pulling its weight in the recovery. The chart below shows us q/q changes in Trend data and makes clear the steady recovery in total Private sector demand since mid-2014. Until the start of this year that growth had indeed been outpaced by the Public sector, but more recently that has eased and with it the pace of recovery has stabilised at 0.4% q/q for the past 3 quarters.161209

Within the Private sector there has obviously been much focus on investment, and how that component has fared in the face of the mining investment slowdown. Here too we see a recovery in place. While Household Consumption growth has remained fairly steady at around +0.5% q/q, we have seen Private sector investment move back into positive territory. We have now seen the total Private sector in positive q/q territory for two consecutive quarters after a run of 9 negatives. While dwellings investment has been positive and non-dwelling building remains negative it’s not all been about houses and units.  We have also seen a return to strength of machinery and equipment investment over the past 2 quarters (although there is still plenty to do to make up for declines in previous years).1612092

In the Public sector we’ve seen previously strong Government Expenditure growth easing sharply over the past few quarters and a sharp turnaround in Public sector CAPEX. As a result the rate of growth of total Public sector demand has fallen sharply and was in negative territory (-0.3% q/q) this quarter; the first such decline since the final quarter of 2013. Our take-home message would be that the Queensland domestic economy is recovering reasonably well and that recovery is built to a good degree on the back of the Private, rather than Public, sector. Indeed, at least in this most recent quarter, the Public sector has stopped growth being even stronger.1612093

GDP falls but Queensland stays positive.

Today saw the release of the GDP data for the third quarter. After some weak data from net exports the markets had been expecting a figure around a 0.1/0.2% decline. The result came in worse than expected at -0.5% q/q for an annual increase over the year of +2.5% or a year on year increase of just 1.8%.

Whilst the result came in weaker than expected we should note that the second quarter (which had been rather higher then expected) was actually revised slightly higher (+0.6% q/q after an initial plot of +0.5% q/q).

Aside from net exports, which deducted 0.3ppts from growth, the other big negative was Public Capital Formation which deducted another 0.5ppts (last quarter this sector added 0.7ppts to the stronger growth so this quarter is something of a payback from last quarter). Household Consumption (the main component of GDP) was up just 0.4% q/q and contributed just 0.3 ppts to growth (a small improvement on the 0.2ppts result from last quarter) .

This is the first quarter of negative GDP since the first quarter of 2011. The country has still not seen a recession (2 quarters of negative growth) in over 25 years and there is no sign that we will see another negative next quarter given data (such as retail sales and terms of trade) already seen for Oct.

The weaker GDP plot certainly reopens the possibility of a further cut from the RBA in coming months although our feeling remains that is not needed.

1612072
As we know, the story in Queensland has been somewhat different. On a quarterly basis the ABS only produce State Final Demand data for the states (which does not account for net exports) and as such tends to understate the picture for an exporting state like Queensland. Queensland Treasury do produce quarterly Gross State Product data (which includes net exports) but the data for the Sept quarter will no be available from them until later this month.

The ABS provide Gross State Product data for the states on an annual basis for the financial year and this showed Queensland growing at just 2.0% (see our FNQ Economic Roundup later for more details). State Final Demand rose 0.1% q/q after the strong +0.7% q/q from the previous quarter. As a result Queensland State Final Demand was up 1.2% y/y (up from 0.6% y/y last quarter) which is the best result for the state since the final quarter 2013. This is now two consecutive quarters of positive y/y growth breaking a string of seven negative quarters; and it’s the fourth consecutive quarter of positive q/q growth.

161207
When we consider the components of State Final Demand we see that both the Private and Public sectors have grown. Household consumption is up 2.4% for the year while private capital formation has fallen by 3.0% (dwellings investment +10.1%, non-dwelling –15%) for a net increase of just 0.9% y/y.

Government expenditure increased by 3.4% while public capital formation fell 2.5% for a net increase for the public sector of 2.2%.
What we are seeing is the Queensland economy growing, but that growth is largely on the back of relatively strong Government Expenditure. Investment in the private sector continues to be a drag despite strong dwelling construction investment.

There can be little debate that the Queensland economy is starting to recover. Once we see the Treasury quarterly data for Gross State Product (which will include the strong exports data) we are expecting to see further evidence of the recovery.

ABS estimate QLD Gross State Product +2.0% in 2015/16

A few weeks ago we discussed the Queensland Treasury quarterly estimates of Gross State Product (GSP) and noted that they reflected a strong 3.3% growth for the 2015/16 year (see here). Yesterday saw the ABS release their own (annual) estimates for 2015/16 and these showed Queensland with just a 2.0% growth in GSP; so why the difference?

Firstly let’s note that in general the two measures move relatively well together (see chart below), although discrepancies are not unusual at an annual level.

161119

Obviously there are different methodologies used by both the QLD Treasury, who estimate each quarter, and the ABS who provide State data only on an annual basis. As the notes to the ABS data reveal, there are differences in the way that the national accounts are estimated and the way that the State estimates have to be dis-aggregated from the national numbers. The ABS say “In analysing the chain volume measures it is important to recognise the data limitations at the state level and to be aware that the accuracy of the estimates will not be as high as that of the corresponding national estimates.”

Therefore we need to be careful when making comparisons between the ABS and the QLD Treasury numbers. Nevertheless it is worth making some general comments to help explain what appears to be a fairly large difference in the 2015/16 data.

Firstly let’s note that the ABS had QLD GSP growth in 2013/14 and 2014/15 as stronger than the Treasury estimate. Therefore their 2015/16 growth estimate is coming from a somewhat higher base than the Treasury number, and is therefore consequently a lower growth rate.

State Final Demand in the Treasury numbers fell 1.7% in 2015/16 while the ABS data had only a 1.3% drop. Therefore we must be looking at a lower measure of Net Exports in the ABS data than from the Treasury. And indeed that is what we find. In simple terms the ABS have State Final Demand about $7.5 bn higher than Treasury (with almost all the difference being seen in Household Consumption and Private Fixed Capital Formation) but they have Net International Exports $4.1 bn lower than Treasury. Overall the difference in GSP is that the ABS data is some $3.6 bn higher than Treasury, despite the slower growth rate.

The takeaway message here is that the QLD economy is recovering (on both sets of numbers) and that recovery is being driven by international exports as our LNG exports (in particular) come on line. Whether that growth is 3.3% or 2.0% is something for the pollies to argue over. Given the differences in methodology, and the inherent problems in disaggregating national data to a state level, we would suggest plumping for a number somewhere in the middle; let’s say +2.6%.

UPDATE. Gene Tunny at Adept Economics has done some excellent further analysis of the GSP data.

Queensland economy grows at fastest pace in over 4 years

Data released last week by the Queensland Treasury shows the state’s economy grew 1.2% in the second quarter of 2016; the fastest pace of growth since Q1 2012. While Queensland Treasury release their Gross State Product data on a quarterly basis the ABS only do so annually (and we must wait another three weeks until they release the state data for the second quarter), so there is inevitably some debate, generally along party lines, as to whether we can believe in the Treasury numbers. As we have said in the past, we can see no reason not to. Indeed the first chart below indicates that, whilst there are some differences between the annual QLD Treasury and ABS data, they are generally very similar and we would therefore expect the ABS data to confirm the pick-up.

1611082161108

The Treasury numbers show Gross State Product (GSP) rose by 3.3% for the year 2015/16 (up from growth of 0.8% in 2014/15).  The reason for this return to growth can be laid fairly and squarely at the feet of our exports. When we consider the Gross State Expenditure (i.e. stripping out the impact of imports and exports from and to the state) we see growth of just 0.5% (although this is only the second quarter of positive growth in this measure in the past 10 quarters) for the quarter and a decline of 1.7% for the year.

With our net export position moving from a $14 billion deficit in 2014/15 to a $0.3 billion surplus this year, it is little surprise that GSP growth has picked up. Annual GSP is running at approximately $311 billion this year (up from $301 billion last) so it’s clear that the swing in net exports of over $14 billion has been the main driver. Indeed while household expenditure (the major component of Gross State Product) rose 2.5% over the year, this is the slowest pace of growth since Q1 last year. The second chart below also makes clear the dramatic, and continuing, slowdown in private investment which hit its lowest level in six years this quarter and is down 15% for the year.16110831611084

The Treasurer’s comment on the data (see here) acknowledges, at the end of his statement,  the impact that exports have had on Queensland’s growth but also tries to talk up the non-export related sectors such as dwellings investment and household expenditure. We have already noted that household expenditure growth is actually relatively weak (and weakening) and the more recent slowdown in building approvals data (see here for latest commentary) could point to a slowdown in this sector in coming quarters.

Forecast strong growth in Queensland will be relying heavily on further impressive growth in our net exports unless we can see the non-mining sector start to increase investment, and improved confidence spur further household expenditure.