Someone is not getting their funding cut. It’s the Australian Bureau of Statistics, the Quiet Australians! It has been a week, and nobody seems to have noticed, but the front page of the GDP release has been doctored, sorry … enhanced. In a happy coincidence for Josh Frydenberg, a spot of rounding and seasonal adjustment have delivered the Treasurer another 0.3 per cent for his next GDP.
Looking behind those GDP numbers
There was no one smiling more than Josh Frydenberg at the release of the latest GDP growth figures. The new-look front page of the release by the Quiet Australians at Australian Bureau of Statistics (ABS) showed the year to June GDP growth looked alright at 1.4 per cent. The attachments to the GDP release showed where this annualised “seasonally adjusted” number sits:
This is clearly a downward sloping graph. We’ll get back to the new-look front page shortly. As it is new. And it’s different. Although, in fairness to the ABS, the numbers inside remain the same, only the presentation has changed.
CBA also reports contracting manufacturing and services output
A little over two hours before the GDP release, CBA updated its monthly “Composite PMI” for August. This is more recent second-tier data than the first-tier June GDP.
“The PMI Output Index tracks changes in business activity in the Australian private sector economy as a whole. A reading above 50 indicates expansion in business activity while below 50 points to contraction.”
The bank revised its August index down from 49.5 to 49.3. Down from 52.1 in July. According to CBA, this is only the third time there has been a decline since data was first collected in March 2016.
Since the treasurer’s April Budget Speech, the CBA numbers have been:
And that’s even after the $1080 low and middle income “tax cuts” started to feed into the system from the Government’s signature economic policy.
What’s a PMI? It is widely quoted and eagerly awaited; an index of the prevailing direction of economic trends in the manufacturing and service sectors. The index summarises whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting.
Businesses are reporting that they’re no longer expanding; they’re now contracting.
A pair of 4s becomes a pair of 5s
Back to the ABS release of the GDP number and its new front page. Gone are the “trend” figures which the Quiet Australians used to feature. The ones that usually appear first. These are the “headline numbers”, the ones the media usually quote.
While the trend numbers have gone, the data is reflected in a graph. Yet the only quotable numbers are the seasonally adjusted ones. And the quarterly seasonal ones look good, or at least they look better than the trend.
The Headline Trend number for the March quarter was 0.3 per cent when it was first released three months ago (rounded up from a rather low 0.257 per cent, and now revised to a healthier 0.371 per cent). And the June quarter number was 0.409 per cent.
These both round to 0.4 per cent: the trend gives a “Headline Pair of 4s”. By highlighting the seasonally adjusted numbers, the Treasurer gets 0.518 per cent and 0.481 per cent for March and June. These round to 0.5 per cent: a “Headline Pair of 5s”.
In other words: it looks 0.2 per cent better. And it suggests stability or, as the Treasurer puts it, “resilience”.
GDP growth starts off 0.3 per cent higher next time
Does this really make a difference? Yes, the higher numbers will stay in the annual calculation for the rest of this year. So, the switch is good for the treasurer, giving him roughly an extra 0.2 per cent; and a higher base for longer into the future. Lucky fellow.
Any other advantages in the switch? Yes, the next number to drop out of the annual seasonal calculation is last September’s 0.297 per cent. If the numbers had stayed with trend, the Treasurer would lose a significantly larger 0.398 per cent.
The switch gives him another 0.1 per cent. So what’s the switch worth? Probably an additional 0.3 per cent in the next headline number. That’s not a bad start.
Was there a downside in making the switch? Yes, when we look at the latest annual numbers. Trend would give 1.48 per cent as the latest GDP growth. Seasonal only gives 1.44 per cent.
ABS has been resilient before
The Guardian reported on August 27 that references to wealth inequality reaching its peak in 2017-18 were removed from an ABS press release to help craft a “good media story”. They noted also that, “A spokesman for the ABS has denied any interference by the Morrison government or the suggestion it sought to misrepresent data, which was all strictly factual, arguing media releases “aim to showcase key findings” with journalists free to draw their own conclusions from other data”.
Notes: The ABS revises the historical GDP data each release, so we have to wait and see how the new front page turns out three months from now. The Commonwealth Bank commissioned IHS Markit to conduct research and provide insights for the Commonwealth Bank Flash Composite PMI through the Purchasing Managers’ Index Report.
The Commonwealth Bank Flash Composite PMI is based on data compiled from monthly replies to questionnaires sent to representative panels of purchasing executives in 400 manufacturing and 400 services firms in the private sector. Sources: Australian Bureau of Statistics. Commonwealth Bank. IHS Markit. Investopedia definition of PMI.
Trading Economics. https://www.michaelwest.com.au/hospital-pass-josh-frydenberg-and-the-coalition-as-ahem-superior-economic-managers/