Australian businesses have benefited from higher prices. Workers? Not so much | Greg Jericho

Jhe March Quarter GDP Figures sound pretty good, but they hide a massive shift in the economy from employees to business and profits. A few weeks ago when I was writing about the latest wage figures I noted that while GDP numbers were useful, the problem was “you can’t eat GDP”.

This was never clearer than with the March quarter figures which showed strong growth overall, but a shocking result for workers.

The 0.8% growth in the quarter was well above expectations and the 3.4% annual growth is the type you like to see in a recovery:

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And yet, our attempts to catch up to the pre-pandemic trend level have somewhat failed. At the end of last year, annual GDP was 2% below the pre-pandemic trend; now it’s 1.7% below. At this rate, we won’t catch up until this time next year:

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As has been the case throughout the pandemic and recovery, the main driver of the economy was household spending, which contributed 0.8 percentage points to growth in the quarter. Of March. Inventory accumulation, which will hopefully now be purchased and used, also added a percentage point.

Government spending has also helped the economy, although much of the increase was due to flood relief in New South Wales and Queensland and the ongoing purchase of rapid antigen tests.

Overall, the national economy has grown quite strongly, but we have lost on the trade side.

In the first three months of this year, our import consumption increased by 8.1%, while our export volume fell by 0.9%. In total, net exports fell by 1.7 percentage points of GDP.

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That’s not too bad, considering our import purchases mean we’re spending well. The problem, however, is that the cost of everything is rising.

The Australian Bureau of Statistics estimates that import prices have risen 19% over the past year, while the cost of home construction and alterations has risen 11.4% – the fastest rise since 1989, except for the introduction of the GST:

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So prices are going up, and it’s going up fast.

But this is where we begin to understand who benefits and why the fact that the economy is doing so well obscures what is really going on.

During the election campaign, while Anthony Albanese said he would support the Fair Work Commission raising the minimum wage by 5.1%, there was a lot of very stupid talk about a return to the hyperinflation of the 1970s or at the time of the Weimar Republic.

These latest numbers provide a great reality check to such misleading comments.

In the March quarter, real (non-farm) labor costs fell 2.3%. Outside of the pandemic-ravaged June 2002 quarter, it was the biggest single-quarter drop since 2016 and the second-worst drop in more than 20 years.

Real unit labor costs (non-agricultural) are now 5.3% lower than their pre-pandemic level:

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Should the suggestions that wages cause inflation at least have some evidence?

But if wages and overall labor costs fall in real terms, then how does the economy grow?

To be honest, we got the answer on Tuesday when the last Trade Indicators Survey showed that profits in the March quarter increased by 10.2% while total wages increased by only 1.8%.

The main reason is mining.

The huge increase in mineral prices and the relative lack of need to pay additional workers in the export phase caused mining profits to explode:

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Over the past year, mining profits have increased by 48% while their payroll has only increased by 11.7%.

This has led to corporate profits that now represent a record 31.1% of national income:

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As the Bureau of Statistics put it, “Australian businesses have benefited from higher prices.” Australian workers? Not really.

We still spend big. Household consumption increased 1.5% in the quarter, largely due to our renewed ability to eat out, travel and enjoy ourselves through recreational and cultural activities. We also continue to buy clothes, household furniture and equipment, and cars in large numbers.

But while there has been strong growth in travel and dining out, this remains well below pre-pandemic levels:

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The increase in spending was largely due to households reducing the level of their savings – from 13.4% of income to 10.1%.

The savings rate is almost back to pre-pandemic levels:

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This suggests that the gains in household spending via the reduction in their level of savings are coming to an end. This means that for household consumption to continue to grow strongly, we will actually need household income to continue to grow strongly.

But with interest rates expected to continue to rise, households’ ability to continue spending will weaken. And with inflation concerns at the forefront, the pressure to limit wage growth will increase.

And yet, as these figures show, companies have benefited from the rise in inflation; and unless wages rise faster than they are now, the story of our economy will continue to be one of workers getting less and less of their fair share.

Greg Jericho is a Guardian columnist and policy director at the Center for Future Work

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