Is the economy in recession?

No.

So we here in Australia use a very rough and ready definition of what constitutes a recession – two consecutive quarters of negative (seasonally adjusted) GDP growth.  Very rough and ready and I suspect few economists would die in a ditch defending that definition. But there it is, the definition that we use.

Right now the ALP and its fellow travellers are crowing about a a “per-capita recession”. According to the latest ABS data Australia has just recorded two consecutive quarters of negative (seasonally adjusted) negative per capita GDP growth.

Shock. Horror. Surprise.

Yet the last time this calamity befell the Australian economy was in 2006. Remember 2006? The mining boom? The economy going bang-busters? Budget surpluses, tax cuts, and zero net debt as far as the eye could see?   Unemployment running rampant at less than 5%?

A better indicator of recession has been proposed by Saul Eslake – if unemployment rises by 1.5% over a 12 month period then the economy is in recession.  Looking at ABS unemployment statistics this indicator suggests Australia experienced a recession in 2009, and before that in 1990 – 1992.

So great talking point but somewhat less substance to it than the luvvies would like.

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33 Responses to Is the economy in recession?

  1. stackja

    But Chris Bowen said we’re rooned!

  2. Sinclair Davidson

    We’ll be rooned soon enough.

  3. Pyrmonter

    But Sinc, Saul Eslake is, is … some sort of LINO socialist Keynesian …

  4. Boambee John

    If the Liars say we are in a “per capita recession”, will they be moving to reduce the rate of “capita” expansion? Nah, they will rant on until the election, then return to business as usual.

  5. John A

    Per capita? Does that mean we are a little bit lazier than last year? Or are we somewhat less efficient?

    So what, pray tell, do they recommend to overcome this disastrous state of affairs? /sarc

  6. Pyrmonter

    @ John A

    So often that’s how it’s interpreted. But it could mean a range of things: we’re moving into less productive work (ie, productivity is down); we’re working less (labour input is down); there are more dependents (the labour force is down – people retire; there are more children/students; more households with one, rather than two bread-winners); the labour force has increased, but the workers added work in less productive areas (NESB migrant healthcare servants, cleaners); there’s been some change in the value of our capital stock that changes the rate of capital accumulation (remembering that GDP includes gross outlays on capital).

  7. Bruce of Newcastle

    The only reason why Labor wants it to be a recession right now is that ScoMo said this week that Labor’s policies will cause a recession.

    Which they will.

    So the ALP needs a recession now, before the election, so than when they screw Australia they can blame the Libs.

    Totally transparent.

  8. John Constantine

    Do we make a distinction between the hiring of compliance staff and regulators, and the hiring of value adding and creating makers of things and servers of people?.

    If we fired the B-Ark full of Stalin’s own Stasi from the compliance burden departments, even though it would look bad immediately for employment figures, it would be an economic boom time.

    Comrades.

  9. Infidel Tiger

    It’s not a recession. Just two decades of stagnation propped up by an immigration and property ponzi.

    Move along now folks, that facade could fall over at any moment.

  10. John A

    Amazing what a bit of lunch can do for the brain’s cognitive faculties!

    Thinking more about this, I wonder if the per capita recession is the result of a worsening of the ratio between worker bees and the drones?

    If so, I have a suggestion for them about how to reduce the ratio of drones in Australian society. They may not like it but I am confident it will do the country a lot of good.

  11. struth

    We are in recession, no matter what those in over crowded Population Ponzi cities see around them.
    GDP is bullshit if government spending is taken into the formula which it is.

    All the smarties with all their degrees can’t tell me why Venezuela doesn’t just import a million immigrants to fix their economy up.
    Dickheads the lot.
    Bringing people into a socialist welfare state that produces bugger all has got to fix the economy or to “create work” is the biggest lot of bollocks out.
    Only jobs it creates is enlarging government.

    We are definitely in recession and those that think we aren’t are lying to us or need to get out more.

    When Labor comes in, that will end up a lot worse than just a recession.
    We will be the next Venezuela.

  12. Dr Fred Lenin

    Shortens gang will be good money managers they still have the best ex treasurer in the Universe ,comrade swan, to call on for advice ,didnt he and that wossname ,the PM save i[us from the Grate Finanshal Krysis we didnt have back ten years ago . You are all worrying too much, lighten up just wait for the goodtimes to come with the union gang .
    Isnt it strange how history passes people by kruddie ,cant rember your name .

  13. Judith Sloan

    Falling living standards.

  14. Ivan Denisovich

    Shortens gang will be good money managers they still have the best ex treasurer in the Universe ,comrade swan, to call on for advice ,didnt he and that wossname ,the PM save i[us from the Grate Finanshal Krysis we didnt have back ten years ago .

    Does Sinc endorse Swan’s definition? :

    Uh oh. Look at Swan’s list of “savings”. The very first item is in fact a tax – a $1.7 billion flood levy. Another “saving” is nearly $1 billion for a tax on company cars.

    https://www.adelaidenow.com.au/ipad/bolt-budget-reads-like-a-fairytale/news-story/c12f41a438279e4bf49c0ed9359011e8

  15. 1735099

    Unless you’re looking for work, you would have no idea.

  16. Unless you’re looking for work, you would have no idea.

    This is exactly correct!

    No-one who runs a business would have any idea how the economy is going.

    You KNOW it makes sense!

  17. TFX

    Growth in GDP per capita is basically dependent upon growth in Total Factor Productivity, which is primarily based upon innovations in technology, based upon research. Around the world in the advanced economies we are seeing diminishing marginal returns to research across most economic activities. The technological frontier is now moving very slowly compared to the past. The laggards can still catch up but current trends show that we are not going to anywhere near match the progress of the last three centuries. All the forecasts and prognostications of how wealthy we will be in the future are based upon historical trends not more recent trends.

  18. struth

    Growth in GDP per capita is basically dependent upon growth in Total Factor Productivity, which is primarily based upon innovations in technology, based upon research. Around the world in the advanced economies we are seeing diminishing marginal returns to research across most economic activities. The technological frontier is now moving very slowly compared to the past. The laggards can still catch up but current trends show that we are not going to anywhere near match the progress of the last three centuries. All the forecasts and prognostications of how wealthy we will be in the future are based upon historical trends not more recent trends.

    Let me guess, you’re in research?

  19. Tel

    It’s not a recession. Just two decades of stagnation propped up by an immigration and property ponzi.

    Propped up by rising debt as well.

    With Australia dropping interest rates alongside the USA increasing rates, it telegraphs to the world that we are hopeless and can’t keep up. The Fed funds rate has been chugging along to 2.5% (possibly a little too enthusiastic but they can back that off fairly safely now, because they have a bit of working room). The RBA interest rates have nose dived down to 1.5% and looks like they will cut again because big government can’t pay their interest payments and central bank independence is a joke (like everything else in this country). This time next year the RBA will be down around 1% probably and the AUD will hold its manhood cheap.

    Property ponzi, artificially low rates and rising debt go hand in hand. You listen to Peter Schiff talk about mal-investment in the USA, but Australia is in a whole higher league of mal-investment.

  20. Squirrel

    Clearly what’s needed is a fresh dose of targeted can-kicking – hence the renewed talk about “rate relief” which the commentariat parrot-chorus started recently, in anticipation of these ho-hum figures.

    And, what could possibly go wrong with a national economic model reliant upon conning people into living beyond their means on the basis of inflated home prices?

  21. TFX;
    I clicked on your name at 4:57. Thought you might have had something to do with the TFX fighter project.
    Got this dialogue box:
    “You are about to log in to the site “optusnet.com.au” with the username “t****%2E****”, but the website does not require authentication. This may be an attempt to trick you.”
    Just in case you don’t want some details known.

  22. Perth Trader

    I had a mining industry friend say ‘ Aust should let 20mill. well healed chinese migrate to Aust and all our troubles will be over’. At the time I was confused at what he said, now I agree.

  23. Craig Mc

    Are we in a per-Hawthorn-premiership recession? It makes as much sense.

    Per-capita recessions is ripe for the second edition of Spurious Correlations.

  24. TFX

    To struth

    I am an economist with a great deal of experience and knowledge of the agricultural sector, not a researcher. Agricultural research delivered some absolutely phenomenal gains to Australian agricultural productivity 70 to 80 years ago. It has been diminishing marginal returns ever since and we are not unique as similar patterns apply in North America and Europe agriculture. Robert Gordon from the US in his most recent tome has shown that the same principles of diminishing marginal returns to research apply across other sectors and including Moore’s law. Finding the answer to diminishing marginal returns to research, if there is one, is not obvious, though there are many hypotheses that might improve things at the margin.

  25. 2dogs

    Prices have started moving, but the coming recession won’t really hit home until 2021.

    China will be affected, and Australia’s largest impact will be from that.

    Downgrade earnings estimates for companies selling to China. Make sure any exposure Australian assets, particularly real estate, is well supported by earnings.

  26. Tim

    I’m not sure why anyone is surprised about a slowdown

    With Labor leading the polls and with their negative gearing plans the investors are fleeing rental property investment
    and
    the excessive regulation both libs and Labor are imposing and planning why would anyone invest at the moment. Lower investment means less jobs

    Its not rocket science

    Get the government out of the road

  27. Gavin R Putland

    Libertarians aren’t supposed to make a virtue of spreading the misery. That’s what socialists do.

  28. John stankevicius

    John Constantine
    Spot – occ health and safety, workplace relationship monitoring, set health menus for the food truck etc – talk to people in the construction industry and they hate what they are doing. An hour wasted each morning talking what they are going to do and the compliance is so suffocating that people don’t think on the job or use their common sense. You comply with occ health and safety

  29. Mother Lode

    I suppose when they calculate GDP per capita, they are counting a percentage of insane uneconomic government profligacy as part of my ‘wealth’.

    If they cut off half of government I would be happy to have my per capita GDP reduced.

    Which half?

    From the navel up.

  30. Mother Lode

    Clearly what’s needed is a fresh dose of targeted can-kicking

    Maybe they can revisit the strategy they employed before! Think batts!

    Saturate a sliver of the private sector, attract an itinerant hoard of fly-by-night operators who infest, strip and move on like plague of locusts, then belatedly offer meagre compensation to the people whose lives you destroyed.

    They could give people $921.13 to spend on gardening services. An algal bloom of gardeners will suddenly appear each of them offering services worth exactly $921.13.

    They will turn up, knock over pots, break windows with shovel handles, dig trenches in flower beds, poison roots, yank out roses and put in plastic copies, and dump their own faeces on people’s gardens.

    Some kids will die – overcome by fumes when painting dead grass green or using a hair dryer while watering so it looks like they didn’t drown buds. But those funerals will also add to GDP.

    And when the government suddenly cancels the program and the hoards of fly-by-nights have taken their money and melted back into the population, while property owners pick their way through the ruins of their backyards, and real gardeners businesses are left high and dry with 20 tonnes of manure and no customers, the government will give them a few coins to sod off – it is all they are going to get.

    And those few coins? Government spending! GDP!

  31. Slayer of Memes

    Sinc,

    Any comment on Robert Gottliebsen’s article in The Australian today??

    Lessons from the per-capita recession

    The 2019 per-capita recession is not a genuine recession but there is value in analysing the downturn because it maps the forces and dangers that will shape Australia’s future.

    And it also provides a warning to us: the people to whom we looked for guidance in mapping the economy were caught out by the unusual forces that drove the per-capita recession. We have to hope they have learned, but I fear a much more serious downturn maybe be required for groups like some of the institutions managing our superannuation money, banking regulators, the Reserve Bank, the politicians and the chief executives to fully grasp the new forces.

    To understand why life has toughened we first need to remind ourselves of some of the causes of the earlier boom because their reversal contributed to the downturn.

    During the boom the institutions convinced bank boards to generate short term profits and the bank boards responded by taking greater risks and flooding the housing market with money for both investors and residential buyers at a time of massive foreign buying. Understandably dwelling prices and building rates skyrocketed. At the same time, we enjoyed strong minerals revenue. Australia lowered interest rates then held them steady. Australians increased their borrowings dramatically. Then came the reversal.

    The bank regulators and governments stepped in and made it tougher for foreign buyers. They drastically reduced the amount banks could lend on dwellings by changing the lending criteria. Dwelling prices fell and highly leveraged consumers cut back on spending, especially as energy prices were increased dramatically, mainly because of the actions of state governments with green agendas. Public servant wages rose but in the rest if the economy wages were stagnant.

    With Julie Bishop as foreign minister we fell out with our main trading partner China and Chinese buyer cutbacks contributed to 20 and 30 per cent apartment price falls in Sydney and lesser falls in Melbourne. The outer suburban land boom in Melbourne cracked. The Reserve bank hinted at interest rate rises while all the above was happening.

    So, what do we learn about the future?

    – The falling house prices did not help inner city home buyers because the amount they could borrow went down. Step by step, there has been a dramatic change in attitude – a greater proportion of young people, particularly professionals, no longer see owning a dwelling as a goal. They are going to rent from investors, often Chinese. Accordingly, if we keep making it tougher for investors to borrow, refuse to lend to Chinese, place higher stamp duties and other charges on foreign investors (Chinse pay 12 per cent NSW stamp duty) we will create a dwelling shortage and push up rents for this new generation of permanent renters.

    Labor’s negative gearing changes were excellent policy three years ago but are now dangerous. First home buyers wanting to buy a dwelling are moving to outer suburban and regional areas in Melbourne and Sydney or to other capitals like Brisbane.

    – The Reserve Bank has called it wrong most of the way. It did not fully understand the close link between house prices and consumer spending and as late as last November did not recognize that the change in bank lending rules was creating a severe credit squeeze. Consequently its recent growth projections have been wrong. It needs to move most of its people out of Martin Place to Parramatta and into the other states to gain a better feel for what is happening.

    – The combined bank regulators APRA and ASIC started the credit squeeze in the belief that they should improve the credit quality of bank balance sheets by forcing much tighter lending guidelines. Then came the royal commission, which has greatly increased the nervousness of bank staff in awarding loans because if they lend irresponsibly to customers then the bank may be liable for customer losses. The staff will lose their job. The severity of the consequent credit squeeze actually reduced the quality of bank balance sheets. A wake-up call to the regulators will be necessary to ease credit without going back to boom practices.

    – We need to understand that the Australian community is borrowed to the hilt so anything that reduces house prices will have a big effect in consumer spending and the economy. Only now is this starting to be understood by regulators, state governments and councils. Add that to the increasing pro-rent attitude of inner-city professionals and we have important structural changes to take into account in decision making.

    – One of the reasons central bankers in both the US and Australia have been calling it wrong is that wages have not grown at the rates they predicted given the high levels of employment. The reasons are many and varied but several stand out. There are a larger proportion of older people in the work force who are more interested in continued employment than wage rises. In addition many more employment sectors now compete with overseas labour and new technologies including artificial intelligence makes workers nervous about pushing for wage rises and unions are less powerful outside the public sector.

    – If the ALP gains government and succeeds in its aim to lift wages we will see a dramatic increase in computerised and artificial intelligence investment. Already business investment is rising as companies prepare for the new environment. Unions and an ALP government will need to moderate their wage demands or they will trigger massive longer-term staff shedding.

    – In the short term they will push up prices and put upward pressure on interest rates and therefore lower house prices. There are no easy answers, but the players need to understand the consequences of dramatic action.

    – In the post Julie Bishop era of foreign relations, Australia needs to work hard to repair relations with China or we will be hit hard by the China slowdown. We need to stop making choices between the US and China. We need to be close to both countries.

    The per capita recession enables us to clearly see the forces that are shaping the nation and to understand the consequences of any actions we might take.

  32. Mal Thomas

    Millenialight is sort of right.

    My first reaction on reading about the current PC recession is that the timing was obviously political – why has this idea only been discovered now? – the answer being to embarress the libs.

    Nevertheless, shifting to per capita analysis for all sorts of economic growth indicators would be a useful thing – as the Productivity Commission pointed out in its Migration report. The idea that two quarters of negative growth (whether in aggregate or per capita) constitutes a recession is still problematic, as Sinc notes – and the suggestion of using shifts in the unemployment rate may well be better. Of course, that rate to some extent has a per capita element.

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