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By Michael Yardney
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13 things to know about the Australian economy right now

Despite this year’s steep rise in interest rates Aussies keep spending and this consumer cash splash continued driving robust growth in the national economy.

Australia's economy as measured by the Gross Domestic Product (GDP) rose 0.6 per cent in seasonally adjusted terms in the September quarter of 2022 and by 5.9 per cent through the year, according to the ABS.

Sean Crick, ABS head of National Accounts, said increased household spending once again drove GDP growth.

"The September quarter was the fourth consecutive quarter of economic growth, following a contraction in the September quarter 2021, which was impacted by the COVID-19 Delta outbreak." Economic Growth

Household spending continues to drive growth

Household spending rose 1.1 per cent for the quarter, contributing 0.6 percentage points to GDP.

Growth was driven by spending on Hotels, cafes and restaurants (up 5.5 per cent), Transport services (up 13.9 per cent) and Purchase of vehicles (up 10.1 per cent).

"Households continued to increase spending on domestic and international travel as COVID-19 travel restrictions continued to ease.

Spending on new vehicle purchases increased as international supply chain constraints eased, enabling an increase in vehicle imports," Mr Crick said.

Spending on hotels, cafes and restaurants has exceeded pre-pandemic levels for the past two quarters.

Consumer spending

Source of chart: Australian Financial Review

Consumer spending

Source of chart: Australian Financial Review

Here's 13 things to know about the Australian economy

1. Our economy grew 0.6 per cent during the September quarter of 2022, and 5.9 per cent compared to last year

This was the fourth consecutive quarter of growth since the COVID-19 Delta variant lockdowns.

Household consumption drove the increase, growing 1.1 per cent.

In fact, Australia's $2.2 trillion economy is 6.4 per cent larger than before the pandemic struck.

2. We spent more and saved less.

The household saving rate continued to fall reaching pre-pandemic levels.

The household saving-to-income ratio fell for the fourth consecutive quarter (from 8.3 per cent to 6.9 per cent) as increases in household spending outpaced household income growth.

Households saved 6.9 per cent of their income during the quarter, compared to 6.8 per cent in the December quarter of 2019.

This was despite a large increase in the compensation for employees.

"The household savings ratio continued to decline this quarter, moving towards pre COVID-19 pandemic levels. Higher levels of spending and increases in interest payable on dwellings detracted from household saving compared to the June quarter," Mr Crick said.

Savings Rate

Source of chart: Australian Financial Review

3. Consumer prices rose 1.8 per cent during the September quarter of 2022 and 7.3 per cent compared to last year.

This was the fastest annual increase in CPI since 1990.

The major drivers of consumer price increases during the quarter were housing, gas and furniture.

4. Wage growth continued to trail inflation

..but showed signs of strengthening in response to tight labour market conditions.

The unemployment rate for the month of September was 3.5 per cent.

Compensation of employees rose 3.2 per cent, which was the highest quarterly rise since December quarter 2006.

Tight labour market conditions, with the unemployment rate being at a multi-decade low, and job vacancies at high levels, were key to the rise.

The Fair Work Commission’s 2021-22 minimum wage decision, and the increase in the superannuation guarantee (10.0 per cent to 10.5 per cent from 1 July 2022), also contributed to this growth

The private sector wage price index rose 1.2 per cent in the September quarter of 2022, the highest rate of growth since the September quarter of 2010.

Compared to a year ago, private sector wages rose 3.4 per cent, the highest annual rate of growth since the December quarter of 2012.

Compensation of employees growth the strongest since December 2006

5. We continued re-engaging with the world.

In the first full quarter of relaxed international travel restrictions, spending on overseas trips grew 58 per cent.

International travel reached 56 per cent of pre-pandemic levels as holidays returned to our lives.

travel world

6. Airlines soared.

With pent-up demand, activity in the air transport industry rose 25.2 per cent.

The construction industry was strong on the back of major engineering and infrastructure projects and rose 2.3 per cent.

Coal mining activity has fallen for four quarters in a row.

7. Domestic mobility increased.

Household purchases of transport services rose 13.9 per cent, reaching 70 per cent of pre-pandemic levels.

We purchased more cars as supply bottlenecks began to ease and imports rose.

Catering and accommodation services also grew by a strong 5.5 per cent with increased tourism and mobility.

8. Our exports rode on the sheep’s back.

While wet weather hampered exports of coal, rural exports surged 9.8 per cent, led by wool and cotton.

Imports of communications equipment rose 5.7 per cent as new mobile phone models became available.

9. Exports were supercharged by lithium.

Our lithium concentrates exports reached a value of $3.4 billion this quarter and were up six-fold through the year.

Lithium has surged into Australia’s top 10 export commodities.

10. Private business investment rose 2.5 per cent led by an increase in infrastructure building.

Home-building activity rose 3.4 per cent following an uptick in building approvals, a moderation of labour and material shortages, and an improvement in weather conditions.

Government construction fell as quarantine facilities in Queensland and Western Australia was completed.

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11. Profits of financial corporations rose 4.9 per cent during the quarter.

Rises in the cash rate during the quarter saw lenders tending to pass on rate increases on loans more quickly than on deposits.

This was the fastest growth in financial profits since the September quarter of 2008.

12. The current account returned to a deficit

...for the first time since the March quarter of 2019 as corporate profits went overseas.

Mining profits fell 7.1 per cent during the quarter due to weaker commodity prices.

Net trade detracted 0.2 percentage points from GDP, with a 2.7 per cent increase in exports offset by a 3.9 per cent rise in imports.

Exports rose for the second consecutive quarter, driven by both goods and services exports.

Rural goods (up 9.8 per cent) were the main contributor to goods exports, with increases in cotton and cereals.

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Mineral ores increased strongly but this was offset by falls in both coal and other mineral fuels exports.

Exports of travel services grew 18.6 per cent, as International Education and Tourism continued to rebound after the re-opening of international borders, but was still approximately 50 per cent below its pre-pandemic level.

Imports rose strongly, driven by Travel services imports (up 58.0 per cent), as Australians travelled abroad.

Imports of travel services have been proportionally stronger than exports, with current levels recovering to approximately 56 per cent of those observed before the pandemic.

Increases in the imports of goods were driven by fuel and motor vehicles.

13. Dwelling construction rebounds while Ownership transfer costs fall

New and used dwelling construction rebounded in the September quarter, rising 3.4 per cent as supply chain and labour constraints started to ease.

However, there remains a large pipeline of dwelling construction.

This can be attributed in part to incentives offered during the pandemic resulting in a backlog of work, and reduced building activity due to COVID-19 restrictions, labour constraints, and supply chain issues.

Construction2

Ownership transfer costs fell 11.2 per cent as the property market eased in the September quarter.

Rising interest rates and falling property prices resulted in declining house sales and auction clearance rates.

Despite falling for four consecutive quarters, ownership transfer costs remained above pre-pandemic levels.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
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