Today’s national accounts is another encouraging set of numbers, reinforcing an economic strategy that is based on driving growth through increased investment to secure the better days ahead.
This has been the heart of the Turnbull Government’s growth strategy to support jobs, by driving investment that in the September quarter created more than 100,000 jobs. That’s more than 1,000 jobs every day.
So far this year we have experienced the strongest jobs growth in forty years, with four out of five jobs being full time.
The solid 0.6 per cent growth outcome in the September quarter national accounts has accelerated growth from 1.9 per cent to 2.8 per cent, through the year.
This is above the OECD average and puts Australia back up towards the top of the pack of major advanced economies.
As you can see from the contributions to growth in the quarter, our growth story is primarily an investment story.
In the context of an expected soft result on household consumption, most likely impacted by concerns over cost of living pressures, and an anticipated negative result in dwellings investment, the engine of our economy has been driven by investment from both the private and public sectors.
For private investment the contribution to our growth more than tripled in the quarter.
The Turnbull Government’s national economic plan has been targeted to move the dial on investment, by encouraging businesses to grow, innovate, hire more Australians, and increase wages.
Everything we do as a Government is aimed at driving investment because we understand it is business that boosts growth, creates jobs and pays higher wages.
And we are seeing the fruits of that action.
In the private economy, which includes household consumption, business investment and dwelling investment, annual growth has lifted from 0.4 per cent to 2.8 per cent in the past two years, under the Turnbull Government.
Looking specifically at investment, new private business investment is now growing at the strongest rate since the peak of the mining investment boom in 2012, expanding by 2.0 per cent in the quarter and 7.5 per cent through the year, to eclipse the 20 year average.
We have now seen four consecutive quarters of investment growth, following 12 consecutive quarters of decline.
Investment in new machinery and equipment has lifted from a through-the-year decline of around 11 per cent two years ago, to a positive growth rate of just shy of 3 per cent today.
In the past two years, the Turnbull Government has been turning our investment ship around. We are now heading in the right direction, by making the right choices, to set the right conditions to encourage investment in our economy.
Business conditions, as surveyed, are at their highest level in twenty years. Last week’s Capital Expenditure Survey showed expectations for non-mining investment in 2017-18 improving strongly to be around 7 per cent higher. Non-mining firms are expected to invest $80.9 billion this financial year.
Our Enterprise Tax Plan is a key part of this, which is why it must be supported. But so too are our many other plans, our positive trade agenda, our support for innovation and new start-up businesses, our investment in our defence industries to support new manufacturing jobs and our investment in important public economic infrastructure.
As noted by the RBA, one of the reasons why businesses have been encouraged to go out and invest is because of the record infrastructure investment that is underway across the country.
New public final demand, across all levels of government, was up a solid 1.2 per cent in the quarter, to be 4.4 per cent higher through the year.
This growth was driven not by increases in the size and cost of running government, which actually fell at a Commonwealth level during the quarter, but by government investment in building the capacity of our economy and our defence forces.
New public investment was up 12.6 per cent over the year, with defence investment up 31.0 per cent over the year.
This is in line with the Government’s record $75 billion investment in economic infrastructure, two-thirds of which will be provided to the States for spending on their roads, railways, water and other projects.
Turning to households, consumption increased by just 0.1 per cent in the quarter, to be 2.2 per cent higher than a year ago, coming off a strong quarter of growth in June. Household consumption contributed just 0.1 percentage points to growth in September.
However, through the year, it contributed 1.3 percentage points to annual growth, highlighting the softness of the results in September.
This is not a surprising result, given the cost of living pressures on essentials that Australians are feeling.
Tellingly, the result shows households were cutting back on discretionary items, while we saw growth in everyday essentials like electricity, food and transport.
Clearly many Australians were concerned about the cost of living and the pressures on their household budget, which reaffirms why it was important that our Budget guaranteed essential services like Medicare and schools funding, while working to put downward pressure on rents, child care and electricity prices, and provide income tax relief wherever and whenever possible.
Concerns around electricity prices were at front of mind in the September quarter. We saw large retail price increases coming into effect on 1 July.
In response the Turnbull Government has taken action.
We got a better deal from energy retailers which saw some customers given a 20 per cent reduction in their bills and we created the National Energy Guarantee, with modelling by the Energy Security Board showing a saving of $400 per year for the average household compared to today’s prices.
More recently we have seen some better data on retail sales, which grew by 0.5 per cent in the month of October after lacklustre results during the September quarter. We also have seen improved measures of consumer confidence, which have recovered after falling to low levels during the September quarter. Let’s not forget households will also be out there this holiday season.
Our exports continue to go from strength to strength.
Mining exports have seen a recovery from the impact of Tropical Cyclone Debbie. Service exports rose almost 10 per cent over the year on the back of strong education and tourism exports.
But it is the agriculture sector where we have seen the most impressive growth, with record crops underpinning export growth of more than 20 per cent through the year.
This is tremendous news for our regional towns and a welcome reward for years of hard work and readjustment following periods of drought. It is also a resounding vote of confidence in the Turnbull Government’s trade agenda that is a key component of our national economic plan.
This rural growth story has been particularly bolstered by strong chickpea exports to India, strong citrus exports to China and strength in our meat exports.
After taking account of imports, net exports recorded a flat contribution to growth in the quarter. Imports grew by 1.9 per cent in the quarter – driven by capital imports which rose 6.6 per cent and reflects the pick-up in business investment.
Looking at today’s results by sector shows it was broad-based with 17 of the 20 industries posting growth this quarter. The services sector – our largest employer – contributed 0.3 percentage points in the quarter and 2.1 percentage points over the year.
Turning to the income side, pleasingly, compensation of employees, what is paid out in wages and salaries, rose 1.2 per cent in the quarter and 3.0 per cent through the year.
This is an encouraging improvement driven by the welcome increase in employment – as I said over 100,000 jobs created in the September quarter – more than a 1000 jobs a day.
As the labour market continues to strengthen, wages will improve and as noted by Governor Lowe there have already been encouraging signs of this in high demand sectors. But there must also be a sustained improvement in profits and productivity.
Profits, or the gross operating surplus, rose 1.2 per cent in the quarter, with through the year growth moderating to 16.7 per cent from a previous surge linked to commodity prices, as I flagged earlier this year when I spoke to the December quarter accounts.
It is an encouraging sign that profits are starting to improve in non-mining sectors. Improved profitability is in line with the record business conditions seen in recent survey measures and is the prerequisite for increased investment, that is now flowing.
Once again, it’s clear from today’s National Accounts that our economy is strengthening. The better days ahead are emerging.
They will continue to strengthen with the right policy settings in place.
That’s why we continue to implement our national economic plan, driving growth policies based on the economics of opportunity, rather than indulging the cynical politics of envy and the $164 billion in higher taxes that would come with it and choke our economy as it is getting back in gear.
The Turnbull Government is getting on with the job.
Keep informed on issues, events and announcements happening in the Cook Electorate. Subscribe to our newsletter today.