It's getting harder to argue that the Australian economy isn't improving

Hobart, Australia. Photo: iStock

If you had any doubts that the Australian economy is picking up steam after a less-than-stellar start to the year, this chart surely puts that debate to bed.

It’s ANZ Bank’s quarterly “Stateometer”, a visual indicator that uses trends across 37 individual indicators to measure the economic performance of Australia’s states and territories.

Source: ANZ

Before we get to the specifics, it’s worthwhile looking at the mechanics of the Stateometer.

Any economy 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 a below-trend rate. 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 economy currently sits, with the lighter symbol where it sat in the prior quarter.

In the June quarter, the Stateometer delivered some welcome news on how the Australian economy is tracking in the middle of 2017.

Economic activity in most states and territories improved noticeably over the quarter, seeing the national growth rate — shown in black — push back towards its historic trend level.

In a nutshell, economic conditions are improving off a relatively low base.

“Australia’s fortunes have improved, as housing construction keeps economies humming in the south east, resources construction in the west and north comes close to bottoming, and labour markets and trade improve nationwide,” said Cherelle Murphy and Giulia Lavinia Specchia, economists at ANZ.

“A number of factors have to varying degrees helped all states, including the stronger global economy, the depreciation of the AUD and lower interest rates.”

According to ANZ, labour market conditions and trade data improved in all bar one state and territory during the quarter. Activity was also supported by the business sector in New South Wales, Queensland, Western Australia and the Australian Capital Territory, while housing also made positive contributions in New South Wales, Victoria and the Australian Capital Territory.

Reflecting a recent rebound in retail sales, ANZ said that household spending also created less of a drag than what was the case in the March quarter.

An encouraging sign on the largest and most important part of the Australian economy, and one that Murphy and Specchia expect will continue in the months ahead.

“Tighter financial conditions, high household debt, low wages growth and the partial rebound of the AUD may take off some gloss,” they say. “But higher labour demand, due to a more confident and profitable business sector, will likely keep these negatives at bay by boosting the household sector in our view.”

From a broader perspective, ANZ says that growth will likely even out across the country in the second half of the year.

“We expect a more consistent economic story to evolve as the south east housing stimulus fades, while the large mining states return closer to trend growth,” says Murphy and Specchia.

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