Consumer spending the key for economists in GDP figures

Economists are awaiting indications wage growth has ticked higher in the second half of the year, with consumer spending set to be the key focus when Australia’s third quarter GDP figures are released on Wednesday.

GDP growth for the three-months ending September is set to be just slightly weaker than the previous quarter at 0.6 per cent according to market consensus, falling from 0.9 per cent in June. That figure is expected to take the annualised growth to 3.3 per cent, still well above the five-year average.

“On the current partial data to date GDP for the third quarter appears relatively solid,” said IFM Investors chief economist Alex Joiner, who added he was expecting the economy to grow slightly ahead of consensus forecasts.

“The economy likely has expanded by around 0.7 per cent which would maintain through the year growth at 3.4 per cent. This is an unambiguously above trend rate of growth.”

IFM's Alex Joiner expects economic growth will be ahead of consensus forecasts.
IFM’s Alex Joiner expects economic growth will be ahead of consensus forecasts.

Wayne Taylor

He said the focus for many economists would be on consumer spending, as they look for a sign wage growth is rising.

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“I think the focus of the GDP data will be on the consumer,” he said. “This is in terms of household incomes and spending. The household saving rate has been in decline as households have kept spending despite soft income growth. This seems unsustainable and wages growth needs to pick up to support this sector of the economy.”

Australia’s wage price index rose 2.3 per cent year-on-year in the third quarter as signs emerge that wage growth is rising.

“There will be particular focus on consumer spending and the wage indicators that come with the GDP figures,” said HSBC chief economist Paul Bloxham. “We expect solid growth in consumer spending, supported by strong jobs growth, and will be carefully watching for further signs of a pick-up in wage growth in the numbers.”

Mr Bloxham said while Wednesday’s figures are expected to show slowing economic growth, the figures would likely be still well above trend.

“We expect growth to be underpinned by a strong rise in exports and continued strength in public demand,” he said. “Mining investment is expected to have fallen in the quarter, although this should be one of the last quarters where mining investment is drag on the economy. We expect an upswing in mining investment over the next couple of years.”

Tuesday’s net export data will be the final key contribution to Wednesday’s GDP figure, with CBA’s economics team expecting a strong net export figure to boost economic growth.

“We will find out the net exports contribution to GDP on Tuesday but at this stage we are expecting a solid contribution from net exports of 0.5 percentage points in the quarter which will boost the overall growth numbers,” said CBA senior economist Kristina Clifton.

“We also see the household and government sectors adding to growth in the quarter. We see the risks as evenly balanced at this stage but will find out more early next week when we get the rest of the partial indicators.”

While the growth of the broader economy will be positively received by the Reserve Bank of Australia, they are unlikely to move rates until there is a material move in wages.

“Strong growth in labour supply is keeping spare capacity in the labour market and wage growth relatively soft,” said IFM’s Dr Joiner. “This suggests inflation will remain soft for the time being and leave the RBA still will little to do but observe the data flow in the expectation that an acceleration of inflation will occur in 2019.”

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