PRELIMINARY RESULTS FOR SELECTED INDUSTRIES

Quarterly CP GVA estimates have been produced alongside the production of recent quarterly National Accounts releases with a time series back to September quarter 2002. The preliminary results for selected industries are presented below.


MINING

• Mining CP GVA is primarily driven by GOSMI, which is almost entirely composed of Private non-financial corporations GOS.
• GOS, and therefore the resulting GVA, is heavily impacted by commodity prices, the Australian dollar and the resulting effects on exports.

The mining industry sees large price variations between quarters as well as between the various commodities produced within the industry. This price volatility leads to significant fluctuations in the current price GVA. Examples of the volatility can be seen in the strong increases in the June 2010 and the June 2011 quarters as shown in graph 2. The June 2010 quarter saw a significant increase in the seasonally adjusted CP GVA movement resulting from very strong increases in the prices of coal and iron ore. Iron ore prices in particular doubled during the quarter. The June 2011 quarter saw a significant rise in the CP GVA as a result of higher GOS driven by strong coal and iron ore sales and prices. These increased sales and prices were due to increased demand following from a very weak March 2011 quarter that saw flooding in Queensland and cyclone activity in WA.

The development of a GVA IPD is particularly useful for Mining, as there is a range of high quality data available. As demonstrated in graph 3, the derived Mining IPD aligns with the Export price indexes (EPI) for coal and iron ore. This would indicate that the production and income measures of GDP are relatively consistent for the Mining industry. This alignment also allows for any deficiencies in the Mining production and income estimates to be easily highlighted through unexpected deviations in the IPD when compared to the Mining price indicators. With the Mining industry being of particular interest in recent times and with the continuing compositional changes and price shifts, the ability to highlight any inconsistencies that may arise during the compilation of the production and income Mining estimates is increasingly useful.





MANUFACTURING

• The Manufacturing industry contribution to GVA has been declining for some time due to strong competition from imported goods.
• Manufacturing CP GVA is dominated by COE, accounting for approximately 60%, with GOSMI accounting for the remaining 40%.

Similarly to Mining, Manufacturing outputs and prices are relatively easily measured and recorded and it would be expected that the derived GVA IPD would follow the movements seen in the Manufacturing output Producer Price Index (PPI).

As seen in graph 5, the GVA IPD aligns quite well with the Manufacturing PPI in recent years, with a couple of exceptions. During the September and December 2013 quarters, a significant deviation between the derived GVA IPD and the Manufacturing PPI can be seen. Graph 4 shows a similar deviation between the CP and CVM GVA estimates during the same period. The strength seen in the September quarter was driven by strong sales of motor vehicles. The deviation between the IPD and the PPI would suggest that there may be information or transactions that were included in the income estimates but not the production estimates, or a compositional shift from quarter to quarter impacting the IPD.






CONSTRUCTION

• Construction services CP GVA is made up of approximately 55% COE and 45% GOSMI.
• Contrary to Mining, where the CP GVA and GOSMI is dominated by PrNFC GOS, Construction services GOSMI is dominated by the GMI component.
• The similar proportions of COE to GOSMI are expected as construction activity is heavily reliant on both labour and capital.

The domination of this industry by GMI highlights the number of small trader and partnership businesses within the industry. The nature of the Construction industry means that the prices and outputs are often more difficult to measure than is the case in goods based industries (for further information refer to Producer and International Trade Price Indexes: Concepts, Sources and Methods (cat. no. 6429.0)). This in turn leads to the effectiveness of the IPD and its comparison to prices indicators being limited, as can be seen in graph 7.

The Construction industry is an example where the comparison of CP and CVM GVA estimates can potentially highlight where there are variations in the timing of particular transactions between the two measures rather than pure price movements. It is an industry where, for example, the expenses, construction activity and income payments may occur in different quarters. This variation may lead to a difference between the CVM and the CP estimates, where the production contributing to the CVM estimates and the profits resulting from the payment of invoices contributing to the CP estimates, may occur in different quarters. This effect can be particularly seen in the most recent quarters from June 2012 onwards in graph 6, where large growth in the CVM GVA can be seen in quarters preceding the corresponding increases in the CP GVA estimate.





RETAIL TRADE

• The Retail trade industry is a relatively important contributor to the Australian economy, and represents around 5% of the current price National GVA.
• The nature of this industry is such that it is labour intensive with approximately 70% of the current price GVA being distributed to labour while around 30% is distributed to owners of capital.

While there are conceptual differences, it would be expected that the derived GVA IPD would align with the IPD derived from Retail Trade, Australia (cat. no. 8501.0) and the measures of CPI. Graph 9 shows that the derived GVA IPD is more volatile than the other price indicators, with strong growth in the IPDs observed in the June and September 2013 quarters.

There are a number of differences in the scope between these measures, for example, the CPI covers the household sector only while the GVA covers household and government final use, as well as intermediate use by other industries. The 5% fall in the IPD observed in March 2013 shows there may have been some inconsistency between the production and income measures. The strong fall in the IPD may indicate that either the production measure is overstated or the income measure understated. Analysis of the underlying data shows that the negative growth in the IPD is due to relatively flat sales combined with an increase in operating expenses, leading to a fall in GOS, demonstrated in graph 8. This highlights that there was a change in the ratio of output to intermediate use, rather than another issue such as timing.





FINANCIAL AND INSURANCE SERVICES

• The Financial and insurance services industry has been one of the fastest growing industries in recent years and is now the largest industry in the Australian economy, contributing 9% of current price GVA in 2014-15.
• The majority of Financial and insurance services GVA is distributed to the owners of capital, with GOSMI representing over 60% of total GVA.
• This industry is mainly dominated by banks and other depository corporations, representing approximately 60% of the total.

In confronting the GVA IPD of Financial and insurance services, there is difficulty in finding a comparable price indicator as there are no price indicators that cover the entire industry. For example, the CPI for Insurance and financial services covers the price inflation for the household sector only, whilst the QBIS output IPD does not cover the banks or the insurance and superannuation funds. Variability between the GVA IPD, the QBIS output IPD and the CPI for Insurance and financial services can be seen in graph 11, and is due primarily to the differences in scope between the three indicators.

Graphs 10 and 11 show significant movements in the CP GVA and the GVA IPD during the period of the global financial crisis (GFC), where interest margins rose, resulting in a higher cost of intermediary services provided by financial corporations.