Richard Denniss: GDP is often used as an indicator of welfare or well
being. The implication being if GDP is growing, everyone must be happy.
This is not true. It's literally just how much stuff got made.
Matt Grudnoff: Hi, I'm Matt.
Richard Denniss: And I'm Richard.
Matt Grudnoff + Richard Denniss: And we're economists.
Matt Grudnoff: Alright, we've got a question here about the GDP figures.
They've come out for the March quarter. So the March quarter is January,
February, March. What are they show?
Richard Denniss: Well, before we talk about what they show, let's talk
about what GDP is. GDP - Gross Domestic Product - is the main sort of
measure that we use in Australia to describe how big the economy is, and
often how fast it's growing. So gross domestic product is talking about how
much product how much stuff got made within our domestic borders within
Australia. So Gross Domestic Product, how much stuff got made in Australia,
between the period January, February, March this year. GDP is often used as
an indicator of welfare or well being, the implication being if GDP is
growing, everyone must be happy. This is not true. It's literally just how
much stuff got made. And whether the stuff that's getting made is homes for
the homeless or holiday homes for the holiday homeless, whether it's food
for hungry people, or restaurant meals for people who eat out every night,
GDP doesn't care, it just adds up the value of all the stuff that got made.
So Matt, what happened in the march quarter?
Matt Grudnoff: GDP went up for the quarter by one 1.8%. But if you look at
the last 12 months, it's only actually increased 1.1%. Which is because we
had the big recession, right?
Richard Denniss: So it tanked last year. And now it's starting to grow.
Matt Grudnoff: And what it means is, is that now that we have yearly growth
of 1.1%, it means we've actually passed the level of GDP in March last
year, which means the beginning of the recession.
Richard Denniss: So the economy is now bigger than it was before COVID hit,
by just a little bit.
Matt Grudnoff: You might think, well, that means the end of the recession,
and everything's fine. But what it actually means is, is we've lost a year
of economic growth. Like the economy, if we hadn't had the recession would
have been much higher after a year of growth. We've only really gotten back
to where we were a year ago.
Richard Denniss: So if I'd got a pay cut, and then I got a pay rise, I'm
not as well off as if I never got the pay cut and got the pay rise.
Matt Grudnoff: Exactly right. So what was contributing to growth? Well,
households, as always, are a big part of the economy. I think they make up
60% of GDP and household spending increased. But interestingly, government
spending decreased this quarter.
Richard Denniss: Decreased -- aren't they trying to stimulate the economy?
Matt Grudnoff: Well, exectly right. But remember, it's a change from last
quarter. So we know that the government, while it hasn't completely cut off
stimulus, it has reduced the amount of stimulus. For the March quarter, we
saw JobKeeper decrease. The amount of JobKeeper decreased. And the
government has basically been withdrawing stimulus. So the amount of extra
money coming in from the government has actually been falling.
Richard Denniss: So they're still pumping money into the economy, but not
as much as they were last year.
Matt Grudnoff: That's right. And also because JobKeeper in the March
quarter went down. Interestingly, business profits also actually fell.
Richard Denniss: Because a lot of JobKeeper was actually more profit keeper
than job keeper.
Matt Grudnoff: Exactly right. This is the first recession we've ever had in
Australia's history, where profits went up during a recession.
Richard Denniss: A good time to own a company.
Matt Grudnoff: Exactly right. So what else happened? Well, we also had a
big increase in this weird category that people don't often look at called
inventories, and it was a massive increase. So for the quarter GDP
increased by 1.8%, point 7% of that, so just under half of that increase,
was due to inventories.
Richard Denniss: Doesn't inventory mean stuff stored in a warehouse
somewhere?
Matt Grudnoff: Exactly right. So it's stuff that we've made, so that's
already been produced, but it hasn't yet been sold.
Richard Denniss: So unsold stuff in warehouses is driving the economy at
the moment.
Matt Grudnoff: Exactly right, which is really weird. And often, inventories
can jump around a bit. They don't have a great way of measuring
inventories, I don't think, but often inventories actually mean that we're
coming up- or an increase in inventories, means we're coming up to a
problem. That is, firms are producing more than they're selling. And so
they've misunderstood how much demand there is out there in the economy.
Richard Denniss: Oh you're thinking a bit glass-half-empty, arent you Matt?
I mean, couldn't the inventory mean that firms are expecting big sales in
the coming year, so they're stockpiling the stuff they need now?
Matt Grudnoff: That could be the case, too.
Richard Denniss: I guess we're gonna have to wait and wait and see.
Matt Grudnoff: We'll wait and see. So one quarter change in inventories, I
wouldn't necessarily get super excited about it.
Richard Denniss: But it's a big part of these latest numbers.
Matt Grudnoff: Yeah, it's almost half the increase in GDP comes from
inventories. The other big driver was business investment. business
investment was was up this quarter, which again, is unusual in a recession
or in the early parts of a recovery. But what was most fascinating was the
bits of business investment. The largest increase came from machinery and
equipment.
Richard Denniss: So all the enormous subsidies we're giving for people to
go and buy a big utes.
Matt Grudnoff: Yep.
Richard Denniss: They're working.
Matt Grudnoff: Exactly right.
Richard Denniss: So we have a 'ute-led' recovery.
Matt Grudnoff: If we have lots of businesses buying utes, then then this
will go up. And the other large part was residential property, dwellings,
also increased.
Richard Denniss: Right. So we've got lots of investment in utes, lots of
investment new houses. The utes and new houses will really set Australia up
for a prosperous export oriented economy in the years to come. Is that what
you're saying?
Matt Grudnoff: Not necessarily. So this is not broad spectrum investment
increases, this is very localised and in stuff that you kind of feel isn't
going to be sustainable in the long run.
Richard Denniss: So inventories up.
Matt Grudnoff: Yep.
Richard Denniss: Utes up. House construction up.
Matt Grudnoff: Yeah. So while 1.8% increase in GDP looks impressive, it is
a bit a bit difficult. Underneath that there are some problems.
Richard Denniss: You could say this is a patchy recovery?
Matt Grudnoff: A patchy recovery, I think is the euphemism people love to
use. But the other thing going back to business investment, is the
construction industry. If we just look at the construction industry, it
increased this quarter, but it still hasn't actually increased to pre
pandemic levels.
Richard Denniss: So there's more construction activity than when there was
in the middle of the crisis, but not as much as there was this time last
year.
Matt Grudnoff: Yeah, so the economy as a whole on average is now above its
pre-pandemic, but construction isn't.
Richard Denniss: Oh well. We'll have to keep watching the data and see what
happens.