March quarter GDP figures look pretty good, but they hide a massive shift in the economy away from employees and toward companies and profits. A couple of weeks ago, when I was writing about the latest wage figures, I pointed out that while GDP data was useful, the problem was “you can’t eat GDP.”
This has never been so clear with the March quarter figures which showed strong overall growth, but a shocking result for workers.
Growth of 0.8% in the quarter was well above expectations and annual growth of 3.4% is the rate you like to see in a recovery:
If the graph is not displayed, click here
However, our attempts to catch up with the pre-pandemic trend level have faltered a bit. At the end of last year, annual GDP was 2% below the pre-pandemic trend; it is now 1.7% below. At this rate we will only update for this time next year:
If the graph is not displayed, click here
As has been the case throughout the pandemic and the recovery, the main driver of the economy has been household spending, which has contributed 0.8 percentage points to growth in the March quarter. The accumulation of inventories, which is expected to be purchased and used now, also added a percentage point.
Government spending also helped the economy, although much of the increase was due to flood assistance in New South Wales and Queensland and the ongoing purchase of rapid antigen testing. .
Overall, the national economy grew strongly, but we lost the commercial part.
In the first three months of this year, our consumption of imports increased by 8.1%, while the volume of our exports fell by 0.9%. All in all, net exports fell by 1.7 percentage points of GDP.
If the graph is not displayed, click here
This is not a bad thing, since buying imports means that we are spending well. The problem, however, is that the cost of everything is rising.
The Australian Bureau of Statistics estimates that import prices rose 19% last year, while the cost of building and housing modifications rose 11.4%, the increase fastest since 1989, except for the introduction of the GST:
If the graph is not displayed, click here
So prices are going up and up fast.
But that’s where we start to get to who benefits and why the fact that the economy is growing so well hides what’s really going on.
During the election campaign, as Anthony Albanese said he would support the Fair Work Commission to raise the minimum wage by 5.1%, there was much, very stupid talk about the return to hyperinflation of the 1970s or the days of the Weimar Republic.
These latest figures provide a great check on the reality of this misleading comment.
During the March quarter, real (non-agricultural) labor costs fell by 2.3%. Outside of the June 2002 quarter that was devastated by the pandemic, this is the biggest fall in a quarter since 2016 and the second worst fall in more than 20 years.
Real (non-agricultural) unit labor costs are now 5.3% lower than they were before the pandemic:
If the graph is not displayed, click here
Surely the suggestions that wages are driving inflation should have at least some evidence?
But if wages and general labor costs are falling in real terms, how is the economy growing?
To be honest, we received the answer on Tuesday when the latest Business Indicators survey showed that March quarter earnings rose 10.2% while total wages only rose 1.8%.
The big reason is mining.
The huge rise in mineral prices and the relative lack of need to pay additional workers in the export phase has seen the benefits of mining explode:
If the graph is not displayed, click here
Last year, mining profits rose 48% while its payroll rose just 11.7%
As a result, corporate profits now represent a record 31.1% of national income:
If the graph is not displayed, click here
As the Statistical Office put it, “Australian companies have benefited from rising prices.” Australian workers? Not so much.
We are still spending a lot. Household consumption increased by 1.5% during the quarter, largely driven by our renewed ability to eat out, travel and enjoy recreational and cultural activities. We also continue to buy clothes, furniture and equipment for the home and cars in large quantities.
But while there has been strong growth in travel and eating out, it remains well below pre-pandemic levels:
If the graph is not displayed, click here
To a large extent, the increase in spending was driven by households that reduced the level of their savings, from 13.4% of income to 10.1%.
The savings ratio is almost back to pre-pandemic levels:
If the graph is not displayed, click here
This suggests that earnings from family spending by reducing your level of savings are running out. It means that household consumption continues to grow strongly, we will actually need family income to continue to grow strongly.
But with interest rates continuing to rise, the ability of households to keep spending will falter. And with inflation at the forefront, it will increase the push to limit wage growth.
And yet, as these figures show, corporations have benefited from rising inflation; and unless wages rise faster than they currently are, the history of our economy will continue to be one where workers receive less and less of their fair share.
Greg Jericho is a Guardian columnist and director of policy at the Center for Future Work