THE BIG PICTURE: Why mining in NOT the biggest driver of our economy

The perception is that the mining sector has driven the Australian economy over the past four years. But how does that perception line up against reality?

We have looked at the GDP per industry data between the end of 2007 to the end of 2011, excluding the components “taxes less subsidies”, “statistical discrepancy” and “ownership of dwellings” that are part of the production measures of the national accounts.

And coming out on top is the “professional, scientific and technical services” sector, accounting for almost 16% of the overall growth in the economy over that period. The sector includes engineering businesses, law firms, accountancy practices and scientific research companies.

In second spot was “health care and social assistance”, contributing 14.4% of the total GDP increase.

This point wouldn’t be lost on the Reserve Bank, with the recent Board minutes noting “strong growth” in employment by the health and education sectors.

Construction was the third biggest driver, contributing 13.5% of the increase in total GDP. Most likely the increase would have been concentrated in engineering.

And next strongest was “mining”, with the increase in mining output accounting for 13.2 % of the lift in GDP.

Only three sectors went backwards over the four-year period, led by “manufacturing”. Only the “machinery & equipment” area of manufacturing added to GDP over the period.

The week ahead

In Australia, winter comes to an end during the coming week, and again there is only a spattering of indicators to provide interest for investors.

In the US, economic growth and consumer confidence data are released and investors will await a speech by the US Federal Reserve chairman at Jackson Hole on Friday.

In Australia, the week gets off to a quiet start. There are no key indicators for release today while tomorrow the focus is on Housing Industry Association data on new home sales and an Australian Bureau of Statistics (ABS) publication detailing government financial estimates for 2012/13.

The home sales data is the most interesting, with the hope that rising migration, tight rental markets and lower interest rates are bearing fruit in terms of increased sales of newly erected dwellings.

On Wednesday, the ABS releases data on the construction sector for the June quarter. As well as showing how much construction work was completed in the three months to June, the publication also provides estimates of the work currently underway and the amount of work yet to be done. So we get some sense of the pipeline of work, and therefore the underlying health of the economy. The residential work-done estimates plug straight into the economic growth calculations – these figures are due on September 5.

On Thursday, the June quarter estimates of business investment are released alongside data on building approvals and managed funds. The building approvals data is volatile but we are tipping a 4% lift in approvals to build new homes after a 2.5% decline in June.

But most interest will be in estimates of business spending on buildings and equipment. In the March quarter, investment spending rose by 6.1%, supported by a 10.5% lift in outlays on new buildings.

Future investment for the 2012/13 year was also super strong, with the second estimate up 23.5% on the same estimate made for 2011/12.

However, while we expect investment in the June quarter rose by another 4%, companies may have pared estimates of future investment given the slowdown in China and choppy conditions generally in the global economy.

And on Friday, there will be more data on regional population while figures on outstanding loans (private sector credit) will also be issued. Credit may have risen another 0.3% in July – further evidence of the cautious approach to borrowing by consumers and businesses.

In the US, two regional surveys kick off proceedings on Monday – the Chicago Midwest and Dallas Fed manufacturing surveys. On Tuesday, the Standard & Poor’s/Case Shiller measure of home prices is issued together with consumer confidence data and the Richmond Fed survey.

Home prices are recovering smartly with economists tipping a 0.6 % seasonally adjusted lift in June.

But the consumer confidence reading may be little changed. While the sharemarket has risen, so have gasoline prices.

On Wednesday, revised economic growth estimates are due for the June quarter. The first estimate of 1.5% annualised growth may be lifted modestly to 1.7% – still below the ‘norm’ of around 2.5-3.0%.

Also on Wednesday, the Federal Reserve will release its Beige Book survey, a report which should show a healthy dose of cautious optimism. And on the same day, estimates of pending home sales are issued.

On Thursday, data on personal income and spending are released together with weekly data on claims for unemployment insurance and more regional surveys by Federal Reserve district offices.

Economists tip a healthy 0.3% lift in consumer incomes while spending may have lifted by 0.4%.

And rounding off proceedings on Friday in the US are revised August estimates on consumer sentiment, data on factory orders, the influential Chicago purchasing managers index and a speech by the US Federal Reserve chairman Ben Bernanke at the Jackson Hole symposium.

Sharemarket, interest rates, currencies and commodities

With the first eight months of the year almost completed, it is a useful time to check the performance of the world’s sharemarkets.

Sharemarkets generally rose to early April before hitting a wall with the emergence of fresh jitters in Europe. Equities markets then retreated, bottoming out in early June. But then markets again turned higher on greater optimism that European problems would eventually be sorted out.

The broad gauge for the world sharemarket – the world MSCI (Morgan Stanley Capital International index) – is currently up by 9.4% over 2012, lifting over 12% in the 11 weeks from the June 4 low (an annualised gain of 58 %).

The best performing global sharemarket is Venezuela (up 149%) followed by Egypt (up 49%) and

Pakistan (up 32%).

Of the major markets, the German Dax has lifted 19% over 2012, with Japan and the US Dow Jones Index both up around 8%, the Australian All Ordinaries up around 7% and the UK FTSE up around 4%. Of 72 global sharemarkets tracked by CommSec, 53 markets have lifted so far in 2012.

Craig James is chief economist at CommSec.


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