The best and worst thing about this week’s national accounts was the strength in consumer spending – household consumption contributed 0.5% of the 1.1% GDP growth number for the December quarter.
It’s good because it represents a powerful rebound from the declines of the previous two quarters and was broad-based – food, household goods, health and recreation – but it’s bad because it didn’t come from wages. Instead households dipped into their savings or borrowed to finance consumption.
That suggests it’s not sustainable. In fact the past couple of months have seen a sharp slowdown in retail sales, so in the March quarter consumption is likely to contribute much less to GDP than it did last quarter.
The other good thing is that non-business investment is rising pretty strongly – up 6% in the December quarter, after a 3% drop in Q3. Annual growth is 12%, a post-GFC high.
And finally national income has turned around thanks to rebound in the terms of trade, as a result of rising commodity prices. Whether that finds its way into real wages growth is another matter – there is still a lot of slack in the labour market.
