State & territory economic performance report
• How are Australia’s states and territories performing? CommSec has attempted to find out by analysing eight key indicators: economic growth; retail spending; equipment investment; unemployment, construction work done; population growth; housing finance and dwelling commencements.
• Just as the Reserve Bank uses decade averages to determine the level of “normal” interest rates; we have done the same with the economic indicators. For each state and territory, indicators were compared with decade averages – that is, against the “normal”.
• It is clear that the ACT has the stand-out economy at present. In the ACT, unemployment is low, with housing activity, construction, population growth and economic growth all above average. The only blots on the copybook are retail spending and business investment.
• The Western Australian economy had also been an out-performer but it has slipped back to the pack. While construction work is the clear driver, population growth has slowed, dragging on the housing sector. Unemployment is low compared with other states but it has been drifting higher.
• There is little to separate Victoria, South Australia, Northern Territory, Tasmania and NSW. Certainly NSW has been a major improver over the last quarter led by above-average population growth and firmer business investment. But both the Queensland and NSW suffer from weak housing markets – the only two economies where dwelling starts are below decade averages.
ACT is the stand-out; throw a blanket over the rest
• Three months ago it was clear that the ACT and Western Australian economies were out-performing other states and territories. Now it is just the Australian Capital Territory that leads the pack. The ACT economy may be small, but effectively all engines of growth are firing. Population growth is above average, fuelling demand for homes and other infrastructure. And solid activity levels are keeping the jobless rate near record lows. The two areas of under-performance are retail spending and spending by private businesses on machinery.
• Western Australia has lost momentum over the last quarter with unemployment trending slightly higher in response to slower housing activity. But commercial & engineering building remains at high levels, investment is strong and overall economic growth is the strongest in the nation.
• After the ACT and Western Australia, you can effectively throw a blanket over the other states. Certainly there is little to separate South Australia, Victoria, Northern Territory and Tasmania. And the NSW economy is not far away from the pack, with momentum supplied by stronger business investment in equipment.
• The Victorian economy has the strongest housing market of the state economies. In fact dwelling starts are 20 per cent above decade averages while housing lending continues to grow, in contrast to the other states. The area of relative weakness is the job market where Victorian unemployment is slightly above decade averages, in contrast to other states where it is lower.
• The South Australian economy is supported by historically-high population growth, underpinning activity across a number of sectors. Overall construction work is almost 47 per cent above decade averages, with current annual growth second only to the ACT, up 20 per cent.
• The relatively-small Northern Territory economy continues to be under-pinned by very low unemployment together with firm retail spending. The unemployment rate of 3.1 per cent remains well below the 4.9 per cent decade average. The areas of under-performance are construction work, which has slowed markedly since early 2009, and housing finance.
• The performance of the NSW economy continues to be restrained by the construction sector – both new home building as well as commercial and engineering activity. But high population growth relative to decade averages points to the need to build more homes in coming quarters. Business investment in equipment & machinery is strongest in NSW of the states & territories – either compared with “normal” levels or annual growth rates.
• In Tasmania the areas of strength are relatively-low unemployment and above-average dwelling starts while retail spending and business investment tend to lag behind other states and territories.
• The performance of the Queensland economy continues to be hampered by historically-low population growth, affecting building and construction activity. But business investment in plant & equipment is 28 per cent above longer-term averages and spending in the latest quarter was over 7 per cent higher than a year ago. And rebuilding activity following the floods will substantially boost construction activity in coming months.
How was performance judged?
• Each of the states and territory economies were assessed on eight key indicators: economic growth; retail spending; equipment investment; unemployment, construction work done; population growth; housing finance and dwelling commencements.
• The aim was to find how each economy was performing compared with “normal”. And just like the Reserve Bank does with interest rates, we used decade-averages to judge the “normal” state of affairs. For each economy, the current level of the indicator – such as retail spending or economic growth – was compared with the decade average.
• While we also looked at the current pace of growth, that can yield perverse results. For instance retail spending may be up sharply on a year ago but from depressed levels. And clearly some states such as Queensland and Western Australia consistently have faster growth rates due to historically faster population growth. So the best way to assess economic performance is to look at each indicator in relation to what would be considered ‘normal’ for that state or territory.
• For instance, South Australia’s population growth of 1.2 per cent is slower than most other states and territories. But compared with its ‘normal’ or decade-average rate of 0.9 per cent, South Australia’s population growth is far stronger than other economies, underpinning retail spending growth.
• Trend measures of the economic indicators were used to assess performance rather than more volatile seasonally adjusted or original estimates.
Implications and outlook
• There has been some levelling of the performances of state/territory economies over the past quarter. The ACT economy continues to out-perform on most measures, but Western Australia has slipped back towards the pack while the NSW economy has made up ground.
• The Queensland economy was already struggling across a range of measures before the floods. But while the floods will further serve to constrain activity in the short term, rebuilding and refurbishment activity as well as a recovery in coal production will give the economy a substantial lift over the second half of the year.
• A key challenge for most states & territories over 2011 is further tightening of the job market. The challenge is especially notable for the territories, with jobless rates near 3 per cent, and the resources states of Western Australia & Queensland in terms of securing workers for mining regions.
• All state and territory economies would stand to benefit from higher migration levels, and thus firmer population growth, providing much-needed momentum across a range of sectors such as housing. Housing construction is set to slow across the country as evidenced in weaker finance commitments and building approvals.
• The NSW economy has potential to strengthen further as the effects of the global financial crisis continue to recede. But weak construction activity is a key factor holding back economic momentum and needs to be addressed.
Thanks COMSEC
