First speed economy roars ahead

A lot of people don’t like the term “two-speed economy” – and I’ll happily admit it’s not perfect.

But it’s not bad either. Have a look at the two charts here. They show the change in output by industry since early 2008 – in essence, they show how various sectors have fared since the global financial crisis began.

As there are a lot of sectors covered, you can think of the first chart as covering those sectors that are doing better and the second as the “bad news bears” of the industrial landscape.

In both charts, the growth of the average Australian industry is shown as a line.

Who’s doing it tough? Not surprisingly, there are a number of manufacturing sectors at the weak end of industrial performance – the textiles and clothing sector, the worst performer here, is a third smaller than it was, while the printing and recording sector is almost one-quarter smaller.

There has also been notable weakness in the production of building products and chemical products as well as machinery and equipment, and wood and paper products.

Indeed, many manufacturers are struggling. A key reason for that is the Australian dollar, which has been at or near parity with its US cousin for more than a year now.

If the jump to parity could be counted on to be just a short-lived phase, then many manufacturers could simply shrug it off as short-term profit pain rather than a longer-term threat to business viability.

However, the dollar’s stay at high altitudes has lasted a while now and manufacturers are wondering whether they can continue their struggle against keenly priced import competition.

The road transport sector also counts as one of the poorest performers among Australian industries during the past four years.

Output in the sector is still 7 per cent below where it was at the time the global financial crisis hit and it has fallen again in the latest quarter.

The heart of current weakness remains where it has been for some time – in long-haul trucking, which is on the weaker side of the two-speed economy.

Retailers have also been in the doldrums.

Although the savings rate is no longer rising as rapidly as it had been, weakness in the employment rate and falling housing prices have combined with modest sentiment and a rise in online sales to dampen outcomes and spirits in the sector.

The retail trade sector is 3 per cent larger than it was four years ago; that is well shy, however, of the Australian average gain of 8 per cent in output during the period and the current and continuing woes of the sector are well documented.

Retail sales are no more than crawling along. In fact, after subtracting inflation, retail sales have barely been growing at half the pace at which population has grown in the past two years.

That has hurt a number of retailers, among whom the casualty list is long and getting longer, with some household names having hit the wall in recent times.

Part of the trouble is that wealth is falling. Sharemarkets have been range trading for some time in Australia and housing prices are down by some 5.5 per cent on where they were about 18 months ago in late 2010.

That fall in housing prices is one of the factors weighing on family finances (Australians have twice as much wealth in housing as they do in sharemarkets) and it is also helping to drive a continuing modest bias in favour of further increasing savings over the next few years.

On the other side of the ledger, the strong sectors in the country include various parts of the mining industry, as well as healthcare and professional and technical services.

Up there, too, is construction – not because either housing or commercial construction is strong but because of the surge in engineering work that is now under way.

When a business announced a $10 billion engineering project had been given the go-ahead, it used to be worth remarking on.

Now it’s a figure that is commonplace and barely worth noting, simply part of a bigger picture that continues to be remarkably robust.

That says the two-speed split in Australia’s economy, which was already large, is still growing.

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