Westpac on Australian economic growth in the April to June quarter of 2017

(ps. Data & mu initial take is here from earlier: Australia Q2 GDP: 0.8% q/q (expected 0.9%))

In summary ....

The main surprise ... main and critically important negative surprise was around household spending and wage incomes.

  • Nominal wage incomes +0.7% q/q ... With employment up 1.0% in the quarter, this implies that the average compensation of employees contracted, -0.3%qtr to be 0.3% below the level of a year ago. This highlights the compositional shifts in the mining states, towards lower paying jobs, and the underlying weakness of wages growth.
  • Consumer spending grew by 0.7%, vs an expected 1.0%, and annual growth is little changed, at a lacklustre 2.6%. Households did draw on their savings, with the household saving ratio moderating to 4.6% from 5.3% in Q1.

Overview

Overall domestic demand grew by a solid 1.0% q/q, +2.4% y/y

  • Conditions rebounded from weather disruptions in Q1
  • supported by an upswing in public investment (Public demand expanded at a brisk pace)
  • gains in business investment
  • a resumption of growth in exports
  • However, home building was broadly flat and the consumer picture was disappointing

As to national income ... nominal GDP was broadly flat in the quarter

  • Terms of trade declining by 6.0% on a dip in commodity prices ...still up 14.9% y/y and nominal GDP growth is an above par 6.3%.

WPAC looking ahead:

Exports are set to expand further in the year ahead as additional capacity comes on stream and as services continue to increase at a solid pace to meet rising demand from Asia.

Annual GDP growth will move higher in Q3 as the -0.4% for September 2016 drops out of the calculation.

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ps. an AUD update .... hanging just below 0.8 and little changed after its initial mark down on the GDP result announcement.