Australia's broadening economic recovery, in one chart

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Australia’s economic recovery is both strengthening and broadening with the vast majority of states and territories either growing above trend or accelerating from lower levels.

That’s the encouraging view communicated by ANZ’s latest Stateometer report with economic activity continuing to improve on the back of strengthening labour market conditions and public infrastructure investment.

The Stateometer is a visual indicator that uses trends across 37 individual economic indicators to measure the performance of Australia’s states and territories over a three-month period.

Think of it as a report card on how each state and territory economy is performing compared to its historic average.

Based on the data received in the September quarter, here’s how each state and territory fared compared to the previous report.

Source: ANZ

Here’s how to read the chart.

Any state and territory in the top half of the chart is deemed to be growing at an annual pace above its historic trend, while those in the bottom half are growing at below trend.

On the bottom axis, anything on the left suggests that economic activity is slowing, while anything on the right indicates it’s accelerating.

The bold symbols indicate where each state and territory currently sits, with the lighter symbol where it was in the prior quarter.

In the latest report there was a noticeable development: not only did most states and territories grow above or around their historic average, but most also saw momentum improve from the June quarter.

Cherelle Murphy and Jack Chambers, Economists at ANZ, described the result as “consistent”.

“A more consistent economic picture is emerging across regions, with most states and territories’ performances converging a little further,” they said following the release of the report.

“New South Wales, Victoria and the ACT held onto solid growth. South Australia and Tasmania, the two states that have recovered most in 2017, also preserved their strength.”

Adding to the optimistic report card, they also noted that recent economic underachievers — Western Australia and Queensland — also saw growth move back towards trend.

“The resource rich states — Queensland and Western Australia — which have been growing below trend for several years, after the previous commodity price boom, recovered a little more,” they said.

Murphy and Chambers said the broader improvement across most parts of the country was due to strengthening labour market conditions, an outcome that has surprised more than a few this year, including the Reserve Bank of Australia.

“Labour market activity was above trend in every state and territory other than the Northern Territory. Australia has had 13 successive months of employment growth, with a concentration of full-time jobs,” they said.

“This reflects a strong public sector with 51% of the jobs created in the 12 months to the August quarter in public sector roles, especially those related to health and education.”

ANZ said that strong infrastructure spending, especially in New South Wales, was helping to bolster hiring and activity levels in the private sector.

However, despite the stronger labour market conditions, Murphy and Chambers said that one part of Australia’s economy still remains a concern.

Unfortunately, it’s also the largest and therefore arguably most important: households.

“The Stateometer reflects consumers that are facing ongoing headwinds,” they said.

“Households have been grappling with high household debt, anaemic wage growth, slowing house price growth, rising electricity prices and Commonwealth fiscal tightening.”

Housing indicators also softened in Queensland, Western Australia and the Northern Territory, although they continued to help boost activity in New South Wales, Victoria and Tasmania.

Given recent weakness in house prices, auction clearance rates and housing finance data, it will be interesting to see whether this continues to support activity in Australia’s most populous states, New South Wales and Victoria, in the coming reports.

The housing market slowdown, should it continue, may also impact the household sector through a diminishing wealth effect, adding to the headwinds already present.

What happens on that front will go a long way to determining whether the economic recovery currently underway will continue in the period ahead.

The RBA thinks its will but there’s plenty of others who remain doubtful.

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