June 4, 2015
Gross domestic product (GDP) grew by 0.9% over the first three months of this year. The number was stronger than anticipated by economists and takes the annual growth rate to a seasonally adjusted 2.3%, ahead of expectations for annual growth of 2.1%. The first quarter figure is the strongest in a year and up from the December quarter reading of 0.5%.
The GDP numbers were boosted by strong contributions from net exports and inventories both of which have temporary elements. Consumer spending is now running below trend as disposable income is impacted by weak wages growth. Nominal wage income grew just 0.1%, in line with the increase in household disposable income. The lack of growth in disposable income has again seen the rate of savings fall as households tap their savings to maintain their living standards.
Investment activity was weak as lower commodity prices, expected rate increases in the US, a slowing China and currency movements all served to undermine business confidence. The past two quarters of falling business investment will slow the economy and affect corporate growth in the future. A further concern is that the survey of capital expenditure plans for financial year 2015/16 showed a 25% year on year deterioration in business investment. Without a pick-up in business investment employment, growth will suffer as the bulk of new jobs created will be in the lower paid service sector