SA Data Wrap – 11 September – National Accounts point to solid growth in June quarter

This week’s data wrap considers the latest National Accounts data, which indicates that the South Australian economy was growing at a solid pace in the June quarter. However, consideration of more recent partial indicators suggest that economic conditions had eased early in the September quarter.

State final demand continues to grow solidly
The various partial indicators of economic activity that we track in the data wrap have been suggesting that economic growth for South Australia firmed around the autumn period of this year. The June quarter National Accounts data released by the Australian Bureau of Statistics (ABS) last week further confirmed this pattern, indicating that growth in state final demand (SFD) – a measure of all final consumption and investment spending made in the state – accelerated during the quarter.

South Australian SFD in real seasonally adjusted terms rose by 1.7 per cent in the June quarter 2017, up from a 1.3 per cent in the March quarter. The June quarter result was the strongest rise in over 5 years, and exceeded the 1.0 per cent rise in the corresponding national aggregate – domestic final demand. In fact, South Australia recorded the strongest rise in SFD of any state or territory.

It appears the lift in SFD growth was brought about by an increase in public sector investment. Reading underlying movements in public sector and business investment for the June quarter are complicated by the fact that the June quarter data recognises the transfer of the new Royal Adelaide Hospital from private sector to public sector ownership (the hospital was delivered via a public-private partnership). This accounting treatment has the effect of temporarily boosting public sector investment whilst depressing private business investment (but not changing overall SFD). Excluding the approximate capital value of the hospital transfer suggests that underlying public sector investment still rose strongly in the June quarter, while business investment remained around its March quarter level. The lift in public sector capital spending is probably mainly related to a ramp up in activity on transport projects.

Household final consumption expenditure made a moderate contribution to growing SFD in the June quarter, contributing 0.4 percentages points to the 1.7 per cent rise in SFD for the quarter.  Public sector consumption expenditure also made a small but larger than usual contribution of 0.2 percentage points. On the other hand dwelling investment fell slightly, subtracting 0.1 percentage points from overall growth in SFD.

Momentum in retail sales eases
Latest ABS figures on monthly retail turnover indicate that momentum in retail sales faded in July. In trend terms the value of South Australian retail turnover rose by 0.2 per cent in July, down from 0.3 per cent in June. A similar pattern was evident at the national level, with retail sales growth slowing from 0.4 per cent in June to 0.3 per cent in July. Ongoing sluggish growth in household incomes, high household debt levels, utility prices increases from the start of the new financial year, and slowdown in housing market conditions may all have contributed to the slowdown in retail spending.

South Australian home loan approvals fall in July, bucking the national trend
Data on owner occupied housing finance commitments for July points to a potential cooling in housing market conditions in South Australia. The total value of housing finance commitments for owner occupation in South Australia fell by 1.1 per cent in July in trend terms, while the number of commitments fell by 1.4 per cent. In contrast, the value of commitments nationally rose by 0.7 per cent, while the number of approvals rose 0.6 per cent.

Disaggregated data indicates that the decline in the value of owned occupied housing finance commitments for July was broadly based, reflecting reductions in loan approvals for the construction or purchase of new homes and purchase of established dwellings. Although the value of housing finance commitments for owner occupation in South Australia has eased during 2017, they remain high compared to their average level over the past 5 years.

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