Australia’s economic fortunes have improved according to the ANZ Bank's most recent Stateometer -it's quarterly assessment of the economic state of our States.
As housing construction keeps economies humming in the south east, resources construction in the west and north comes close to bottoming, and labour markets and trade improve nationwide, the ANZ Stateometer paints a picture of an economy moving closer to its trend rate in the June quarter.
Today we look at their finding for the South Australia’s economy which has picked up in the June quarter to around its trend rate.
It has been helped by an improved labour market and some pick-up in the household sector, with the latter now less of a drag on the index.
Meanwhile the business component and the trade sector were broadly unchanged, expanding at close to trend growth.
The housing sector continues to have a negative influence on the index.
Figure 1. ANZ Stateometer index - SA
SA arguably feels the weight of Australia’s manufacturing downturn more than others due to its historically high concentration of secondary industries.
Good news in the state has been focused on the certainty delivered by the Commonwealth Government’s naval ship building plan, while renewable energy investment has also picked up. Firms have reported increased capacity utilisation, which augurs well for future jobs growth and investment.
While some measures of business conditions have risen to their highest in the past eight to nine years, confidence among small businesses has been weak.
This suggests to us that there is some momentum in the state’s economy, but this has mostly been led by government spending rather than private sector confidence.
Figure 2. Capacity use by state
Like the rest of Australia, SA has seen an improvement in labour market conditions.
But the unemployment rate remains uncomfortably high at 6.6% (trend) in July and is Australia’s highest with the structural changes in the state’s economy hurting.
Pockets of strength are present in stronger international tourism and international education.
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These are being challenged by the AUD’s recent appreciation and some of the stimulus from these sources seems to have passed.
Figure 3. SA real wages and consumption per capita
The housing market like in other states and territories, has been buoyed by record-low interest rates.
Although not as swollen as the eastern states, it appears to also be softening without an official cash rate hike as lending conditions tighten in line with the regulator’s changes.
Building approvals have fallen in aggregate although apartment approvals still remain at a high level suggesting some ongoing housing construction work.
Compared to other states and territories, SA’s construction sector is reporting a slightly more optimistic outlook, which is likely due to its subdued recent performance.
Figure 4. SA population components
Spending figures have remained relatively high despite the unemployment rate.
Motor vehicle sales have been solid, with anecdotes suggesting sentimental buying of Holden Special Vehicles ahead of the closure later this year.
Despite a relative housing affordability advantage, the state’s weaker labour market means it continues to lose population to other states and territories, with the sum leaving increasing towards the end of 2016.