National income continues to slide: What does it say about the economy?

Australia’s national income has fallen for the second consecutive year, but economists warn the decline should not be viewed in isolation.

According to ABS data released this week, real net national disposable income fell 0.4% in the 2013-14 financial year. In 2012-13, income fell by 1.6%.

In the June quarter, income generated by Australians fell 0.3%, despite a 0.5% uptick in gross domestic product (GDP), or the volume of goods and services produced by the economy, to 3.1%.

HSBC economist Paul Bloxham told SmartCompany the fall in national income directly relates to falling commodity prices.

“It’s a fact that net disposable income on a per capita basis has been falling,” says Bloxham.

“But this is not the only story. GDP is rising [and] it is running at about its trend rate.”

“The amount we are producing is on trend but because of falling commodity prices, income growth is weak.”

Bloxham says the figures are a reflection “that the economy is still rebalancing” and “as the mining story slows down the other sides of the economy need to pick up”.

“That’s still in progress,” he says.

But HSBC predicts income growth will lift and Bloxham says that should benefit SMEs.

“As we shift from a mining-led economy to one led by the non-mining sector, that should help small business which is focused in the non-mining sectors,” he says.

Bankwest chief economist Alan Langford also says national income should be considered alongside the GDP figures, which show the Australian economy is still clearly outperforming European nations and the US, which remains in a recovery phase.

“It’s not on the verge of tanking or falling in a big whole, and that’s reflected in the Reserve Bank’s rhetoric this week,” Langford told SmartCompany.

Langford says business inventories and stock made “a fairly significant contribution” to GDP in the June quarter, and while that is “a genuine addition to growth”, there could be some cause for concern if the build-up in inventories by companies in the manufacturing or retail sectors was unintended.

“But I think it is too pessimistic to say it would all be unintended,” he says.

Langford says the “bread and butter” of the economy, household consumption, remain soft and “the labour market is nothing special, suggesting that some Australian are still nursing balance sheets from the global financial crisis”.

On the other hand, he says there was solid growth in construction in all states during the quarter, and room for that growth to continue.

But Langford says the impact on the federal budget from the figures is likely to be “neutral”.

“Growth is not strong enough to suggest a return to surplus, but equally it is not showing the economy has the sort of weakness that would suggest the budget repair job would be more difficult,” he says.