Numbers mask complexities in economy

Household expenditure in Western Australia has continued to grow, according to the latest transactions data released by the Australian Bureau of Statistics.

The state’s spending growth remains stronger than every other state jurisdiction, apart from South Australia, but there are signs the persistently high costs of living are taking a toll.

The most recent data from the ABS monthly household spending indicator series show spending by WA’s households grew by 2.9 per cent in June 2023.

But WA has also experienced the strongest slowdown over the most recent two months, with monthly household spending growth falling to 4.8 percentage points in June compared with the 7.7 per cent figure seen in April.

Consumer price inflation does seem to be moderating, with the annual inflation rate failing from 7.8 per cent at the end of 2022 to 7 per cent in first quarter of 2023 and 6 per cent in June 2023.

The Reserve Bank board’s latest decision to hold the cash rate at 4.1 per cent reveals its sentiment that Australia is over the peak and the heat is coming off the economy, despite the usual notes of caution from the governor.

But relying solely on headline indicators to project the level of economic health or hardship overlooks many of the nuances and complexities in the economy.

They don’t necessarily reflect the wellbeing of different sections of our society and offer no insights into the relative disparities in economic wellbeing faced by different groups or regions.

Take the ABS spending data as a case in point.

The data show monthly household spending on non-discretionary items in WA rose by 4.1 per cent in June.

However, discretionary spending rose by a more moderate 1.5 per cent over the month.

What does this mean?

If you’re a young family with a new mortgage and little capacity for discretionary spending, you are likely to be facing far greater cost-of-living pressures than might be reflected in the 2.9 per cent headline spending figure for Perth. 

At the same time, older cohorts are far more likely to have paid off their mortgages and benefited from increased deposit rates and have generally been less affected by cost-of-living increases.

These differences were reinforced by Bankwest’s recent Spend Trends data that showed how discretionary spending by Baby Boomers grew far more strongly than for younger generations.

It’s the same for economic growth.

Talk of recession sends shock waves throughout the financial system, with loud recriminations piled on to those identified as custodians of the economy.

But two consecutive quarters of negative economic growth – the technical definition of a recession – projects a level of decline that is perceived very differently to modest but positive economic growth figures.

Yet for many, their real experiences of hardship may be no different under the two scenarios.

And neither are recession conditions spread evenly across businesses, families or communities.

We’re accustomed to making a big thing of headline numbers, and too often fall into the trap of projecting similar impacts on all from headline indicators – whether we’re talking about spending patterns, consumer prices, rental costs or economic growth.

But we should always consider the broader context behind headline economic data to get at the full picture and make well-informed decisions.

• Professor Alan Duncan is director of the Bankwest Curtin Economics Centre