THERE are various ways to slice and dice the economic growth numbers for the September quarter that came out on Wednesday, but they all confirm that the Reserve Bank has more work to do on the interest rates front.
Seasonally adjusted gross domestic product (GDP) growth of 0.5 per cent in the September quarter was only slightly below the market's prediction of 0.6 per cent, and growth of 3.1 per cent for the year was still in touch with the long-term trend for the economy.
By any other standards but Australia's, it looked pretty good, an extension of an uninterrupted growth record that began more than 21 years ago.
GDP, however, has not expanded as slowly as it did in the September quarter since the first quarter of last year when Queensland was hit by catastrophic floods, and there is now an undeniable slowing trend. Annual growth has slowed from 4.5 per cent in the year to March 2012 to 3.8 per cent in the year to June and now 3.1 per cent. The latest result will produce growth of only 2 per cent in the year to June 2013 if the economy fails to pick up.
Other measures give a deeper and better look at the nature of the slowdown, and underline that the Reserve is now playing a lone stimulus hand, albeit one that still includes rate-cut aces.
The real purchasing power of domestic income is affected by the terms of trade - the amount of imports, in essence, that can be purchased with funds harvested from the sale of a fixed amount of exports.
Every dollar of national income became more valuable as the terms of trade rose during the resources boom, but the reverse is happening now. The terms of trade weakened by 4 per cent in the September quarter to be down 13.5 per cent in a year, as China's growth slowed and commodity prices fell.
The purchasing power of Australian income was undermined as this occurred, and the change is incorporated in the national accounts' tally of real gross domestic income (GDI): it fell by 0.4 per cent in the September quarter, to be down 0.1 per cent in a year.
Bank of America Merrill Lynch economist Saul Eslake notes that this is the first annual decline in GDI since the global crisis in 2009, when Australia avoided a GDP recession that would have broken its run of continuous growth, but experienced three quarters of negative GDI. Morgan Stanley strategist Gerard Minack says that before that, Australia last posted an annual GDI decline in the 1990s recession.
The GDI weakness will continue even though the terms of trade were affected in the September quarter by a rollercoaster ride in iron ore prices. Iron ore was $US133.50 a tonne when the quarter began, and hit a low of $US86.70 on September 5. It had climbed back up to $US104 a tonne by the end of the three-month period, and was even higher at $US117.10 a tonne on Wednesday. It is, however, only one element in the terms of trade. The Reserve Bank's monthly commodity price index has been treading water since September, with rural commodity prices rising slightly and non-rural ones weakening. Base metal prices in the index were 4 per cent weaker in November than they were in September.
As Eslake also points out, because GDI is a better pointer than GDP to the weight of money flowing through the economy, it is also a insight into the government's revenue-raising prospects. Its weakness helps explain why Wayne Swan is struggling to get enough revenue in the door to bring the budget into balance next year as promised.
Reduced public-sector activity cut 0.4 percentage points off GDP in the latest quarter and the pubic sector will continue to be a weight on growth next year as the government scrimps and saves. The dollar will also stay high given its new status as a global crisis shelter even as the investment phase of the resources boom cools.
Compared to the global crisis, when governments were spending and the dollar was plunging, the central bank is now effectively playing a lone hand, with ''the other arms of policy now part of the problem, not part of the solution,'' as Minack puts it.
Still, the Reserve is not without aces, as I said. It is able to cut its cash rate further, and will do so, and in that respect it is a rich cousin in the central banking family. The rate-cutting power of the US Federal Reserve, the Bank of Japan and to only a slightly lesser extent the European Central Bank was exhausted by the time the first phase of the global crisis ended in mid-2009. The Reserve still has three percentage points of cuts available: in today's world that is a rare asset.
Ten tip on share issue
TEN Network's annual meeting in Sydney's Wesley Centre on Thursday morning is the deadline for the group to confirm a new share issue, and if it does there will be interest in what else it has to say.
It would make sense for Ten to sweeten a deeply discounted issue with other positive news, and the betting yesterday was that the group will serve some of it up.
Bad news on the ratings front this year can't be reversed. But Ten can announce more progress on cost-cutting, and, perhaps, hint at other plans.
mmaiden@fairfaxmedia.com.au
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