When the insights offered by GDP, unemployment and inflation figures are exhausted, it's time to look at pre-mixed concrete.
Sometimes, in economics, you have a nice big overriding number that can let you know what’s going on. The GDP, the unemployment rate, the inflation rate are all nice big numbers that seemingly encapsulate everything, and allow us to proclaim the state of the economy.
Unfortunately, these figures don’t come around all that often. The GDP figures are once every three months and here in Australia the inflation figures are also quarterly (in other countries they come out once a month). The unemployment figure does come out each month, but as we have seen, working out what the figure means, unfortunately, requires more than just looking at the big number.
Thus deciphering the state of the economy is most often a case of picking through the entrails of data, trying to discern meaning.
On Friday the Bureau of Statistics released its monthly figures on the production of pre-mixed concrete. Why would we care about such a measure? We care because it is a key component of the construction industry. But whereas data on the level of construction activity in Australia only comes out every quarter (the next figure is due in October), the concrete measure is released every month. So we can use it to get an idea of how that sector (and the overall economy) is going.
Concrete and construction growth
This data isn’t presented in a seasonally adjusted trend form so I have used a rolling 12-month average to get rid of all the “noise”. The data shows that in the past year production has pretty much hit a plateau.
Pre-mixed concrete production
It is also clear from looking at the past 25 years that when the production of concrete falls, the economy is often falling with it. The only exception is 1995-96, where the economy was growing but so too did interest rates – the cash rate rose 2.75 percentage points in the five months from August to December 1994. But in the past 18 months interest rates have fallen and yet concrete production (and thus construction) isn’t increasing.
There are a couple reasons. Firstly, the key ingredient of concrete is cement, the production of which is one of the most carbon-intensive industries. Thus the introduction of the carbon price has clearly had an impact. So if you do want to go round looking for evidence of the carbon price hitting industries, then concrete production is where you’ll find it.
But unfortunately the picture is a bit more complex than just being able to blame the carbon price. What has happened reveals the different levels of strength across the nation.
The annual growth of production of concrete in New South Wales and South Australia has remained steady since the carbon price came in July last year. Growth in Western Australia zoomed until October last year, then it fell back somewhat, and now the level of growth is just above that of NSW.
It is yet more evidence that the big investment boom in WA is over.
The main reason, though, for the consistent fall in the growth of production in the national figure over the past 12 months lies in Victoria and Queensland.
Annual growth production of pre-mixed concrete
Prior to the global financial crisis, Queensland was actually the state with the largest total production of pre-mixed concrete, and Victoria was second; now NSW is first. In 2008 Queensland accounted for around 32% of the nation’s production; now it accounts for around 25%.
This one measure of quite narrow data thus gives us a pretty accurate picture of what has happened over the past five years. All states were hit by the GFC, but Western Australia recovered the best. Queensland recovered at the same speed as WA, but once cyclone Yasi and the floods occurred it fell back and hasn’t recovered. NSW and Victoria meanwhile recovered at a similar pace until the past 12-18 months which has seen the Victorian economy flat line for most of 2012.
You can’t always judge everything by one small measure but sometimes data entrails can reveal quite a concrete picture of the economy.