The Australian economy lost momentum in the middle of this year, but the national accounts yesterday offer some positive news on its potential to grow.
Gross domestic product, a measure of the total output of the economy, rose by 0.5 per cent in the September quarter in real, seasonally adjusted terms, according to the figures compiled by the Australian Bureau of Statistics. The long-run average is about 0.8 per cent.
So, after a rise of 0.6 per cent in GDP in the June quarter, the recent growth performance of the economy has clearly been below average.
The sluggish 2.1 per cent annualised rate of growth over those two quarters, compared with a long-run norm of about 3.3 per cent, goes a long way towards explaining the weak - virtually flat - trend in employment at present.
Even then, the gap between GDP growth and employment growth is wider than might normally be expected. It implies output per worker is growing more rapidly than usual.
That's confirmed by the estimate of economy-wide labour productivity.
GDP per hour worked rose by 0.8 per cent in the September quarter and by 3.3 per cent through the year - twice the average for the past quarter of a century.
In the two years to September, this measure of labour productivity rose by 4.6 per cent, the biggest two-year gain for a decade.
The figures are evidence that the earlier slowdown in labour productivity was not the result of some national outbreak of lethargy. The most plausible explanation is in two parts. The first - the as-yet unproductive investment booms in the mining and utilities sectors in recent years.
The second is the cyclical slowdown in productivity growth that normally comes with slower economic growth, which is what the non-mining parts of the economy have been suffering, thanks to the high exchange rate and the global economic crisis.
If the economy continues to post sluggish growth rates, there is a good chance labour productivity might slow again.
But the labour market clearly does have the capacity to generate a solid pickup in productivity growth when the economy picks up speed.
It means the Reserve Bank of Australia does not need to worry about rising inflation when GDP growth sneaks above 3 per cent because, with output per hour growing strongly, that GDP growth rate will not squeeze the available supply of labour.
Instead, the RBA should worry about rising unemployment when GDP growth falls below 3 per cent.
And growth has been trending below that pace since the June quarter.
- AAPBy Garry Shilson-Josling