In today’s Data Wrap we review the latest Labour Force Survey and National Accounts results which provide some of the best insight into recent macroeconomic trends for the state. We also consider the latest winter crop forecasts which have a significant bearing on the agricultural regions of the state.
Unemployment ticks up as employment growth stalls
South Australia’s trend unemployment rate rose to 5.7 per cent in August, up from 5.6 per cent in July, data released by the ABS today shows. The uptick in unemployment was brought about by a small decline in employment which flowed through to unemployment but also people leaving the labour force. The state’s labour force participation rate fell by 0.1 percentage points to 62.5 per cent in August.
Although employment levels in South Australia remain well up compared to the same time last year (1.8 per cent), employment growth has stalled since May 2018. The trend estimate of employment in August was down 0.1 per cent from its previous peak and record high of approximately 842,750 persons in May 2018.
Nationally, the trend unemployment rate fell from 5.4 per cent to 5.3 per cent in August. The decline was due to a better than expected rise in employment (up 29,000 persons), particularly full-time employment (21,000 persons). Looking across the state and territories, the trend unemployment rate rose marginally in Queensland (to 6.3 per cent), fell in Victoria (to 4.9 per cent), and held steady across all other states and territories.
Final demand growth remains sturdy
Amid all the noise from the State Budget last week, the ABS released the June quarter National Accounts, which provides one of the most comprehensive, but not complete, pictures of South Australia’s recent macroeconomic performance.
The latest data reveals that the South Australian economy maintained a healthy pace through the first half of the year. South Australian final demand – a measure of all final consumption and investment made in the state – rose by 0.8 per cent in real trend terms in the June quarter of 2018. This follows several quarters of growth in the 0.8 to 0.9 per cent range, which is healthy by post global financial crisis standards.
A welcome sign is that stronger business investment has picked up the slack stemming from waning public sector support. Business investment rose by 4.7 per cent in the June quarter, and was responsible for almost two thirds (0.5 percentage points) of the overall rise in final demand recorded for the quarter. Although housing investment also rose solidly, it made only a small contribution to overall final demand growth (0.1 percentage points) given its relatively small size. Meanwhile, general government consumption expenditure rose by 0.4 per cent in the June quarter, its weakest rise since the last quarter of 2016, while public sector capital spending fell by 4.4 per cent, its third consecutive quarterly fall. Public sector capital spending has inevitably eased after growing rapidly through 2016 and 2017, but remains at a high level by historical standards.
On a less positive note, growth in household consumption expenditure has slowed from 0.7 per cent in the September quarter 2017 to 0.5 per cent in the recent June quarter. This moderation has been brought about by weaker gains in aggregate incomes. Growth in compensation of employees, which comprises total cash and in-kind remuneration paid to employees, slowed from 1.7 per cent in the September quarter 2017 to 0.2 per cent in the June quarter 2018.
Economic conditions in South Australia are being supported by improving conditions nationally. Australia’s gross domestic product rose by 0.9 per cent in the June quarter, and was up 3.4 per cent over the past year. These results point to the national economy growing at its fastest pace since 2012. The pick-up in growth over the past year has been broadly based, reflecting stronger trends in household and public sector consumption expenditure, an uptick in business investment, a turnaround in dwelling construction activity, and reduced drag from imports.
Winter crop forecast revised down, modest fall now anticipated
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) has revised down its forecast of upcoming winter crop production for South Australia in response to less favourable seasonal conditions in some regions. Total winter crop production is now forecast to be 6.6 million tonnes in 2018/19, which represents an 8.9 per cent downgrade from the previous forecast made in the June quarter. If this latest forecast is realised, then winter crop production will fall by 5 per cent compared to the previous harvest, which of course has negative implications for grain exports.
Unfavourable seasonal conditions in eastern states has led ABARES to revise down its forecast of national winter crop production for 2018/19 by 12 per cent to 33.2 million tonnes. Winter crop production is now projected to fall by 12 per cent, with relatively large falls expected for drought affected states such as New South Wales (-53 per cent) and Queensland (-38 per cent), while a relatively large fall is also anticipated for Victoria (-29 per cent). In contrast, winter crop production is forecast to rise by 12 per cent in Western Australia thanks to average to above average rainfalls across most cropping regions.