Growth in the Australian economy slowed to 0.2% in the September quarter, below expectations (0.5%) and the weakest quarterly growth rate in a year. There was little change in year-ended growth at 2.1% from 2.0% previously, but that has been underpinned by post-pandemic population growth (2.4%), implying a continuation of declining growth on a per capita basis (-0.3%Y/Y). Demand conditions have cooled materially as headwinds have impacted household spending. A continuation of this trend - which looks likely - should help ease inflationary pressures. The RBA Board has not ruled out further tightening, but that looks even less likely now than it did after yesterday's meeting.
Notably, household consumption growth dried up in Q3 (0%) and is little more than flat (0.4%) through the year. Residential construction activity (0.2%) remains weak, though business investment - while moderating to 0.6% in the quarter - continues to be broadly resilient. These dynamics combined to see private sector demand ease from 0.6% in Q2 to just 0.2% in Q3, up 1.4% through the year. By contrast, public demand achieved that pace of growth in Q3 alone (1.4%), with both spending and investment advancing further. Inventories were a key growth support (0.4ppt), but net trade took 0.6ppt off quarterly growth, driven by weakness in exports (-0.7%).
The main story in the National Accounts is around households. The headwinds that are impacting household finances from cost-of-living pressures and rising interest rates are intensifying. While households benefitted from a rise in wages growth as award increases came through, that was offset by increasing interest costs on mortgages (7.6%) - despite the RBA pausing through Q3 - and a higher tax burden (7.6%) due to the Low and Middle Income Tax Offset ending. Accounting for those factors, disposable income - what households are left with - was virtually flat in Q3 (0.1%) and up 1% through the year. Adjusting for inflation, real disposable incomes continued to decline (-1.3%q/q, -4.6%Y/Y).
That backdrop has driven the slowdown in real household consumption, stalling in Q3. Weakness was concentrated in goods consumption (-1.3%) - despite vehicle purchases surging (13%) - with services advancing (0.8%), supported by overseas travel and hospitality services during the FIFA Women's World Cup. This led to the unusual situation of discretionary consumption (0.8%) accelerating despite the headwinds.
But that looks unlikely to be repeated into year-end: the household saving ratio has fallen to just 1.1% - its lowest since 2007. Households will need to draw down on their accumulated savings, which are substantial, to support consumption.
More to come.
