ANALYSIS AND COMMENTS


GROWTH RATES IN GDP

In seasonally adjusted terms, GDP increased by 0.4% in the March quarter. Through the year GDP growth was 0.4%, while non-farm GDP was flat.

On the expenditure side, the growth (in seasonally adjusted volume terms) over the past four quarters was driven by Household final consumption expenditure (0.5 percentage points), Exports of goods and services (0.7 percentage points) and Imports of goods and services (2.5 percentage points). Offsetting the growth during the past four quarters was a fall in inventories (detracting 1.9 percentage points).

On the production side, the strongest contributing industries to GDP growth (in trend volume terms) over the past four quarters was Agriculture (0.5 percentage points). The biggest detractions have come from Manufacturing (-0.8 percentage points) and Property and business services (-0.5 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 March quarter, real gross domestic income decreased by 1.4% while the volume measure of GDP increased by 0.4%, reflecting an decrease of 7.8% 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 fell 7.8% in seasonally adjusted terms in the March quarter following a 2.9% decrease in the December 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 March quarter, trend Real net national disposable income decreased by 1.0%, with growth over the past 4 quarters at 2.5% compared to 0.3% 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 March quarter, in seasonally adjusted terms, Net exports contributed 2.2 percentage points to GDP compared to the 1.7 percentage points in the previous quarter.

HOUSEHOLD SAVING RATIO

The Household saving ratio was 0.8 in trend terms and 1.8 in seasonally adjusted terms in the March quarter 2009.

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 please refer to Spotlight on National Accounts - Household Saving Ratio (cat. no. 5202.0).

Prices in the National Accounts

The National Accounts provides information on price movements within the various expenditure components of GDP. In March quarter 2009, growth in the Household final consumption expenditure (HFCE) chain price index in original terms was 1.0%, compared to an increase of 0.1% 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.

The chain price index for Machinery and equipment rose 3.7% during the quarter and is now 8.2% higher than in March quarter 2008. The Non-dwelling construction chain price index decreased 2.1% in March quarter and is now 1.5% higher than in March quarter 2008. The Domestic final demand chain price index, encompassing changes in both consumption and investment prices, increased by 0.7% in the quarter and 3.7% through the year.

Export prices decreased by 9.0% during the quarter and rose 22.4% through the year. Import prices decreased by 2.8% during March quarter and were up 14.8% 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 March quarter 2009, seasonally adjusted Compensation of employees fell by 1.1%, and the seasonally adjusted number of employees recorded in the Labour Force survey fell by 0.5%. Average compensation per employee decreased by 0.7%.

Through the year growth in seasonally adjusted average compensation per employee was 4.0% compared to 4.2% growth over the same period in the total hourly rates of pay, excluding bonuses as published in Labour Price Index, Australia (cat. no. 6345.0). It should be noted that the conceptual bases for these two wage measures are different.

In trend terms, Hours worked decreased 0.4% during the March quarter with through the year change also a decrease of 0.4%. In the Market sector (see Glossary for definition) Hours worked fell during the March quarter with through the year growth at -0.9%. In the March quarter 2009, GDP per hour worked (in trend terms) grew 0.4%. Market sector GDP per hour worked (in trend terms) was flat in the March quarter 2009, but grew 0.3% 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 relationship between GDP and hours worked is complex and has attracted a great deal of interest. The ABS has produced a number of pieces of analysis which investigate the relationship in detail. 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 March quarter 2009, the trend Real ULC decreased by 0.4% while the trend Non-farm Real ULC decreased by 0.3%. The Non-farm measure is generally preferred as it removes some of the fluctuations associated with Agriculture.

CHANGES IN INVENTORIES

Changes in inventories can have a significant impact on growth in GDP in any particular quarter. 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.

In trend terms the March quarter saw a run down in inventories for all three divisions.


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 June quarter 2009. In the absence of any other revisions, seasonally adjusted growth of -0.3% is required in June quarter 2009 to maintain, in June quarter 2009, the trend growth of -0.1% currently estimated for the March quarter 2009.

Percentage change in GDP Chain volume measure
				Trend estimate if seasonally adjusted GDP changes by the following amounts in June qtr 2009
		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%
2006
	December	0.9	1.0	1.0	1.0	1.0
2007
	March	1.5	1.1	1.1	1.1	1.1
	June	0.7	1.0	1.0	1.0	1.0
	September	1.0	0.9	0.9	0.9	0.9
	December	0.9	0.8	0.8	0.8	0.8
2008
	March	0.8	0.7	0.7	0.7	0.7
	June	0.3	0.4	0.4	0.4	0.4
	September	0.2	-	-	-	0.1
	December	-0.6	-0.1	-	-0.1	-0.2
2009
	March	0.4	-0.1	0.2	-	-0.3
- nil or rounded to zero (including null cells)