ANALYSIS AND COMMENTS


GROWTH RATES IN GDP

In seasonally adjusted terms, GDP increased 0.9% in the December quarter. Through the year GDP growth was 2.7%, while non-farm GDP grew 2.5%.

On the expenditure side, the growth this quarter (in seasonally adjusted volume terms) was driven by Private gross fixed capital formation of Machinery and equipment (0.8 percentage points) , Public gross fixed capital formation (0.6 percentage points) and Household final consumption expenditure (0.4 percentage points). Offsetting the growth was Imports of goods and services (detracting 1.6 percentage points).

REAL GROSS DOMESTIC INCOME

The real purchasing power of income generated by domestic production is affected by changes in import and export prices. Real gross domestic income adjusts the chain volume measure of GDP by the Terms of trade. The graph below provides a comparison of quarterly movements in trend GDP (volume measure) and Real gross domestic income. In seasonally adjusted terms, during the December quarter, real gross domestic income increased by 1.5%, while the volume measure of GDP increased by 0.9%, reflecting an increase of 2.9% in the Terms of trade.

TERMS OF TRADE

The Terms of trade represent the relationship between the prices of exports and imports. An increase (decrease) in the Terms of trade reflects export prices increasing (decreasing) at a faster rate than import prices. The Terms of trade rose 2.9% in seasonally adjusted terms in the December quarter following a 1.1% increase in the September quarter.

REAL NET NATIONAL DISPOSABLE INCOME

A broader measure of change in national economic well-being is Real net national disposable income. This measure adjusts the volume measure of GDP for the Terms of trade effect, Real net incomes from overseas and Consumption of fixed capital (see Glossary for definitions). The graph below provides a comparison of quarterly movements in trend GDP (volume measure) and Real net national disposable income. During the December quarter, trend Real net national disposable income increased 0.6%, with change over the past 4 quarters at -2.0% compared to 2.0% for GDP.

NET EXPORTS CONTRIBUTION TO GROWTH

Net exports represents the difference between exports and imports of goods and services. Net exports detract from GDP growth when the change in the volume of imports is greater than the change in the volume of exports. In the December quarter, in seasonally adjusted terms, Net exports contributed -1.2 percentage points to GDP compared to -1.3 percentage points in the September quarter.

HOUSEHOLD SAVING RATIO

The Household saving ratio was 2.3 in seasonally adjusted terms in the December quarter 2009. The trend estimates for Household saving have been suppressed - see Notes on Page 2.

Household saving is not measured directly. It is calculated as a residual item by deducting Household final consumption expenditure from Household net disposable income. As the difference between the two aggregates is relatively small, caution should be exercised in interpreting the Household saving ratio in recent years, because major components of household income and expenditure may be subject to significant revisions. The impact of these revisions on the saving ratio can cause changes in the direction of the trend. For more information on the Household saving ratio, refer to Spotlight on National Accounts-Household Saving Ratio.

PRICES IN THE NATIONAL ACCOUNTS

The GDP chain price index was 0.9% in December quarter 2009.

The chain price index for Household final consumption expenditure (HFCE) was 0.2%, compared to an increase of 0.5% in the Consumer Price Index (CPI) over the same period. The HFCE chain price index is the National Accounts measure most directly comparable to the CPI. However, it should be noted that the conceptual bases for these two price measures are different. The most important differences are

• the frequency with which each index is re-weighted,
• the range of lower level indexes contributing to each index, and
• the concepts and treatment of household expenditure, particularly in respect of home ownership costs.

Private gross fixed capital formation decreased 0.4% in this quarter. The decrease was driven by a fall in Machinery and equipment prices and offset by a rise in Alterations and additions prices. The Machinery and equipment chain price index decreased 1.8% in December quarter and has decreased 2.0% in the year since December quarter 2008. The chain price index for Alterations and additions rose 0.8% during the quarter and is now 2.5% higher than in December quarter 2008.

The Domestic final demand chain price index, encompassing changes in both consumption and investment prices, increased 0.1% in the quarter and 0.7% through the year.

Export prices decreased 1.9% during the quarter and have decreased 28.3% through the year. Import prices decreased 4.5% during December quarter and have decreased 18.1% through the year.

NATIONAL ACCOUNTS LABOUR MARKET INDICATORS

The National Accounts dataset contains a number of labour market related indicators. Labour costs are the costs incurred by employers in the employment of labour. These costs include wages and salaries, bonuses, paid leave, superannuation, taxes on employment, training and recruitment costs, and fringe benefits (included in wages and salaries in the national accounts). They are of particular interest as they impact on the competitiveness of organisations, employers' willingness to employ and individuals' willingness to supply labour.

Labour costs are reflected in household income via Compensation of employees and therefore have a significant impact on household consumption, investment and saving decisions.

In the December quarter 2009, seasonally adjusted Compensation of employees rose 0.4%, and the seasonally adjusted number of employees recorded in the Labour Force survey rose 1.0%. Average compensation per employee decreased 0.5%.

In trend terms, Hours worked increased 0.3% during the December quarter with through the year change at -0.9%. In the Market sector (see Glossary for definition) Hours worked rose during the September quarter (0.3%) with through the year change at -1.8%. In the December quarter 2009, GDP per hour worked (in trend terms) grew 0.3%. Market sector GDP per hour worked (in trend terms) grew 0.5% in the quarter and 2.8% through the year. Estimates of GDP per hour worked are commonly interpreted as changes in labour productivity. However, it should be noted that these measures reflect not only the contribution of labour to changes in production per hour worked, but also the contribution of capital and other factors (such as managerial efficiency, economies of scale, etc.).

The graph below presents quarterly growth rates in trend GDP and hours worked. The ABS has produced a number of pieces of analysis which investigate the relationship between GDP and hours worked. For more information please refer to Leading Indicators of Employment (Feature Article) and the Research Paper: Analysing the Terms of Trade Effect on GDP and Employment in the Presence of Low Real Unit Labour Costs (cat. no. 1351.0.55.014).

Unit labour costs (ULC) represent a link between productivity and the cost of labour in producing output. A Nominal ULC measures the average cost of labour per unit of output while a Real ULC adjusts the nominal ULC for general inflation. Positive growth in a real ULC indicates that labour cost pressures exist. In the December quarter 2009, the trend Real ULC decreased 1.3% while the trend Non-farm Real ULC decreased 1.7%. The Non-farm measure is generally preferred as it removes some of the fluctuations associated with Agriculture.

CHANGES IN INVENTORIES

Change in inventories can have a significant impact on growth in quarterly GDP. A positive change in inventories can be seen as production increasing at a faster rate than consumption but the exact reasons underlying changes in inventories can be far more complex. For example, firms may run up or run down inventories in anticipation of future sales, supply constraints could affect inventories, or firms may under or over estimate sales in a particular period.

The graph below shows GDP growth and the Change in inventories contribution to GDP growth, both in trend terms. Even in trend terms the Change in inventories contribution to GDP growth is quite volatile.

Change in inventories can be disaggregated into a number of industries. The graph below shows the three largest inventory holding industries, Manufacturing, Wholesale and Retail trade.

RELIABILITY OF CONTEMPORARY TREND ESTIMATES

Trend estimates are used throughout this publication to analyse movements in time series data. Details regarding the procedures used to estimate the trend series are described in the Explanatory Notes (paragraphs 13 - 17) and in Information Paper: A Guide to Interpreting Time Series-Monitoring Trends, 2003 (cat. no. 1349.0). Potential revisions to trend estimates can be indicated by showing the effects of particular changes in seasonally adjusted estimates that might occur in the next quarter. The table below shows the trend estimates for the last ten quarters and the values to which they would be revised if the given movements in seasonally adjusted GDP actually occurred in December quarter 2009. In the absence of any other revisions, seasonally adjusted growth of 0.4% is required in March quarter 2010 to maintain, in March quarter 2010, the trend growth of 0.6% currently estimated for the December quarter 2009.

Percentage change in GDP Chain volume measure
				Trend estimate if seasonally adjusted GDP changes by the following amounts in March qtr 2010
		Seasonally adjusted GDP as published in table 2	Trend GDP as published in table 1	Grows by 1.0%	No change	Falls by 1.0%
2007
	September	0.4	0.8	0.8	0.8	0.8
	December	0.6	0.7	0.7	0.7	0.7
2008
	March	1.0	0.8	0.8	0.8	0.8
	June	0.6	0.5	0.5	0.5	0.5
	September	0.3	0.1	0.1	0.1	0.1
	December	-0.9	-	-	-	-
2009
	March	0.8	0.2	0.2	0.2	0.2
	June	0.7	0.6	0.5	0.6	0.7
	September	0.3	0.7	0.7	0.6	0.6
	December	0.9	0.6	0.7	0.5	0.2
- nil or rounded to zero (including null cells)