Here’s the most confusing chart in Australia’s 4th Quarter GDP

DELAIDE, AUSTRALIA – FEBRUARY 27: Drivers race during race 1 of the Toyo Tires Robby Gordon’s Stadium Super Trucks as a support event to the V8 Supercars Clipsal 500 at Adelaide Street Circuit on February 27, 2015 in Adelaide, Australia. (Photo by Morne de Klerk/Getty Images)

Australia’s GDP looks unremarkable with a print of 0.5% seasonally adjusted for the 2014 December quarter. That’s right on downward-revised market expectations.

The big contributor to the 0.5% growth rate was a 0.7% contribution from net exports (imports minus exports). So we are lucky that volumes of exports are outweighing the big falls in value and sectors which benefit from a falling Aussie dollar are doing better.

But while the focus is on the growth rate, there is a raft of interesting data within the release.

One data point which caught my eye is the Household savings ratio, which has fallen to the lowest level since the GFC.


As with everything in statistics the savings ratio is not what it seems.

The ABS says it is derived “as a residual item by deducting Household final consumption expenditure from Household disposable income as presented in the Household income account”.

So it’s not just what you put in your savings account, but can include extra payments off your mortgage and so on. Crucially it does not include any wealth impacts from rising asset prices.

So here is what is confusing: why are Australian spending so much of their income, yet still reporting that their confidence is only around long-run averages?

Why are we spending more of our incomes now than at any other time since the 2008 September quarter, when the GFC started to kick off and savings started to flow into the Australian banking system.

Mortgage rates are at their lowest level ever, or close too. Wages growth is slowing, but still positive and inflation is falling to levels not seen in years.

But the economy feels weak and consumers lack confidence.

I could say that this is a bad sign and with savings the weakest in years there is little case for consumption to rise.

That may be so, but as Craig James from CommSec reports the GDP data showed that when it came to household spending in December “only two of the 17 sectors recorded weaker spending in the quarter.”

That suggests Australians are more confident than they report.

It also suggests that if the government can get back on message that combined with the wealth effect of a strong share market and solid house prices rises, the bleak Australian economic outlook may be rosy than many, me included, have thought.