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Why your hip pocket is in recession

David Taylor

Nope, I’m not trying to be tricky, or clever. Official data show the money in your hip pocket is receding.

I’m going to lay it all out for you on my ‘economic red carpet’. It’s all here.

I’ve listed some of last week’s key economic data, why those data points are important, and whether or not they should mean anything at all to you.

At the very least you’ll sound like you know what you’re talking about at your next dinner party, and if things go well, you’ll actually know what you’re talking about at your next dinner party.

Who doesn’t like sounding impressive?

Here goes.

Retail sales

Retail sales in April grew by 0.2 per cent. March saw growth of 0.4 per cent.

The Bureau of Statistics data for April show supermarket and grocery stores had a 0.2 per cent fall in sales, while liquor retailing dropped 1.4 per cent.

Meanwhile clothing retailers complained that the unseasonably warm autumn weather dented sales of winter apparel, such as coats and jumpers.

For an economy meant to be “transitioning” from a mining boom, to a consumer-led economy, these numbers are pretty ordinary.

Also read: Burst of good news gives RBA plenty to ponder

Services Index

The “services index” is worked out by the Australian Industry Group every month.

The good news is that there's clearly been a recent pickup in activity across Australia's services sector in May.

The Performance of Services Index rose by 1.8 points last month to 51.5 (above 50 indicates expansion). Sales were particularly strong in the health and financial services sectors.

This section of the economy needs to keep expanding. That’s all you really need to know for the moment.

Balance of payments

I have to admit, of all the data, this one sounds the most difficult to understand. Fortunately it’s quite simple.

It’s made up of two accounts: the current account and the capital account. The current account is basically a ledger of all manner of stuff (goods and services) going in and out of the economy.

Conventional wisdom is that it’s better to be sending more stuff offshore than consuming what other countries make.

Official stats show Australia’s current account deficit narrowed to $20.79 billion in the first quarter.

Come again? OK put it this way. That’s good. It means we’re still pumping out exports at break-neck speed. This time around the category contributed 1.1 percentage points (that’s a lot) to GDP growth in the March quarter 2016.

But… and here’s the kicker! The Terms of trade decreased 1.9 per cent in the quarter. From the March quarter 2015 to the March quarter 2016 the Terms of trade fell 11.5 per cent.

What does that all mean?

Well it seems we’re not getting diddly squat for our exports anymore. Well that’s not quite true, but the value of what Australia sells to overseas markets (mainly China) isn’t even close to what it used to be.

So yes, we’re still pumping out big volumes of exports, but the prices/income we’ve received from those exports has been a little disappointing.

Also read: GDP growth to remain centre of campaign

And finally… Gross Domestic Product or GDP

Last week’s Gross Domestic Product (GDP) figures showed the economy travelling at its fastest pace in around four years.

Specifically the figures showed Australia's economy grew 1.1 per cent in the first quarter, and 3.1 per cent over the past year. That ain’t bad.

Five per cent is probably too fast and one per cent is too close to no growth at all.

As mentioned above, the ‘solid’ performance was driven by a big surge in Australia's exports. Other parts of the economy that are meant to be doing “OK” also showed some promise, including financial services, and consumer spending. Again, that’s also consistent with some of the data mentioned above.

‘OK great’, you say, but ‘what on earth does any of that really mean? Is the economy ultimately ok? And can I expect a higher standard of living soon?’

Well that’s where it gets a bit dodgy. Chris Richardson from Deloitte Access Economics told me during the week that, “The best measure of living standards in Australia peaked when China, and coal and iron ore prices peaked back in 2011."

He also said living standards have fallen another 2.6 per cent just in the last year.

I won’t bore you with the maths, but there’s a measurement in the National Accounts that takes the nation’s terms of trade into account.

It’s a way of making GDP mean something in terms of how much better off we all are.

Economists call it: Real Net National Disposable Income. Quite a mouthful isn’t it?

The quiet statistic – Real Net National Disposable Income

ABS figures show that during the March quarter, trend Real Net National Disposable Income was flat at 0.0 per cent.

Through the year Real Net National Disposable income actually fell 1.1 per cent.

So what do the stats say about you?

Well the average Australian’s income is in recession. The data show during the mining boom Real Net National Disposable Income Per Person (how much you’ve got in your pocket) was a stellar 5.3 per cent.

Currently it’s minus 1.4 per cent. That particular statistic was courtesy of my good friend, and independent economist, Saul Eslake (former head of ANZ Economics).

To rub salt into the wound, wages growth at present is the slowest it’s been on record.

Also read: GDP rose 1.1% in March quarter

Down to Canberra

So yes, GDP is growing, but it’s not at this point what economists like to call “sustainable”, or making us feel any wealthier. In other words, it hasn’t got legs.

The Reserve Bank‘s limited in what it can do.

The politicians, however, are not. We might be in a “structural deficit” but that just means some tough decisions need to be made.

Economist after economist tells me they want to see more courage from the politicians in Canberra. What an opportunity during an election!

My guess is that whichever party sticks it’s neck out the most in terms of genuine economic reform will likely be the most unpopular party in the short term, but in the long term, will make Australian economic and political history.

David Taylor is a journalist with the ABC. Before taking up a position with the ABC, David was a financial markets analyst and economics commentator. You can follow him on Twitter: @DavidTaylorABC.