Census: How we're changing

MULTICULTURALISM has won the battle for Australia. The 2011 census reveals that Australia has become a melting pot of races, with more than one in four Australians having arrived here as migrants, while almost one in eight have Asian ancestry.

Less than 40 years after the White Australia policy was buried by the Whitlam government, the census results unveiled yesterday by the Australian Bureau of Statistics reveal a land of many cultures, many ancestries and many religions.

In the decade to 2011, the growth in Australia's population was mostly among people of Asian ancestry. From just 982,519 in 2001, the number of Asian-Australians has swollen to 2.4 million in 2011 - or from 5.5 per cent of us to 12 per cent.

Even in Melbourne, where Italian and Greek migrants transformed the city in the post-war generation, more residents now speak Chinese or Indian languages at home than Greek or Italian - and almost one in five Melbourne residents is of Asian ancestry.

Diversity has won the battle for Australia. It has become a country where - for better, or for worse - more and more people are abandoning the old cultural norms. More parents and live-in partners are unmarried. Only 61 per cent of Australians now call themselves Christians, down from 68 per cent a decade ago.

For the first time, most Australians aged 25 to 34 are no longer Christians. Just 49 per cent identified with any Christian denomination - almost half of them Catholics - while 10 per cent declared themselves for Buddhism, Hinduism, Islam or Judaism, 3 per cent professed other beliefs, 29 per cent said they had no religion and 9 per cent gave no answer.

Catholicism is resisting the tide, but the main Protestant denominations are seeing their numbers erode away. In 1981, 26 per cent of Australians said they were Anglicans; in 2011, just 17 per cent were. The Catholics have lost some ground among the young, yet in sharp contrast to the Anglicans' fate, 25 per cent of Australians still call themselves Catholics.

Marriage too is losing ground. The census found fewer than half of Australians over the age of 15 are married. The Prime Minister and the First Bloke were among almost 1.5 million Australians living in a de facto relationship - almost 10 per cent of the adult population. More de facto relationships now include children. In a decade, the number of children living with de facto families has swelled almost 50 per cent to 526,000: one in 10 children.

Seven in every 10 children still grow up in traditional families, with two married parents. But with more than a million dependent children living with single parents, and half a million living with unmarried parents, the old social mores are now deeply fractured - particularly among those born in Australia, rather than overseas.

The census found 548,368 Australians now identify themselves as indigenous, up 34 per cent in a decade. Their median age is just 21, compared to 37 for non-indigenous Australians, which helps explain why so many are footballers.

In the decade, Australians have grown richer, but even more in debt. While the median household income rose 57 per cent since 2001, the median mortgage payment swelled by 108 per cent, and the median weekly rent was up 97 per cent. Only 33 per cent of us own our own home outright, down from 42 per cent.

At least those homes are now wired. Even before the NBN started reaching us, 72 per cent on census night last August had broadband at home, and 80 per cent had some form of internet connection. Would you believe that a decade ago, the 2001 census found only one in three Australian homes was connected to the net?

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Those growth figures - they'll be revised down

Wednesday's stunningly high estimate of 1.3 per cent growth in the March quarter is likely to be revised down in future, if past experience is any guide.

Bureau of Statistics data shows that of the past 100 quarterly GDP figures, 18 originally reported growth as being 1.3 per cent or higher. But 12 of those 18 figures were later revised down, most substantially so. Five were revised up, by small amounts, while just one of the 18 ended up as the figure first reported.

The bureau is constantly revising past GDP figures, often changing them dramatically as new data comes to light. But once the spotlight has moved on to the next figures, the public, politicians and economists take no interest. A spectacular example was the 1990-91 recession. The bureau originally estimated that GDP fell 3.2 per cent in the six quarters from April 1990 to September 1991. But now it estimates that GDP fell just 1 per cent in that time. What was said to be the worst recession since the Depression was revised down to be our smallest recession in loss of output - even though it saw the biggest loss of jobs.

The same is true at the top end. Initial estimates showing big GDP growth are usually revised down, on average by 0.4 percentage points.

Four of the past 100 quarterly estimates showed GDP growing by 1.3 per cent. All have since been revised down, on average to 0.9 per cent.

If that happened this time, it would still be a good result, given the strains on the economy revealed by wide-ranging job losses, falling house prices, and weak business and consumer confidence.

But the figures show most of our growth was in two areas - consumer spending and engineering construction - and both rest on very low estimates of inflation.

On these figures, consumer prices rose just 0.1 per cent in the six months to March. In the frenetically busy engineering sector, construction costs rose just 0.1 per cent in the March quarter, and 2.2 per cent in the year.

Despite the anecdotes and mining companies' complaints about the high cost of construction in Australia, the bureau says that in the past 3? years, engineering construction costs have risen just 1.8 per cent or 0.5 per cent a year. That's some contrast to the previous 3 years, when they rose 24.8 per cent.

If correct, that is remarkable, and it sheds a very different light on what a mining boom means for prices.

If it is wrong, then so are the GDP figures, since engineering construction made up almost half the growth in Australia's spending.

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GDP: These figures strain credulity

THERE'S an old saying among economists: if a figure looks wrong, it usually is. Yesterday's estimate that GDP grew 1.3 per cent in the March quarter amid all the job cuts is a good example.

These figures strain credulity. If they are right, then the economy has far more strength than we suspected. If they are wrong, they will be revised down, or followed by a fall.

These are just first estimates. The bigger the first one, the more likely it is to be revised. For June 2010, the first growth estimate was 1.2 per cent; that now reads as 0.6 per cent. Just a year ago, GDP was estimated to have fallen 1.2 per cent in the March quarter: that fall is now just 0.5 per cent.

Suppose the figures are right: what do they tell us that we didn't know? Quite a lot.

They show an economy firing on two engines: mining investment and consumer spending. We knew about the first, and is it firing! Engineering construction, 5 per cent of the economy, now generates half its growth.

In Western Australia, demand (total spending) jumped 14 per cent in the past year. On these figures, WA is growing faster than China. The surprise is the second engine. On these figures, far from being cautious consumers, we have been on a binge.

Consumer spending shot up by 1.6 per cent in the March quarter. We bought 3.7 per cent more food, 5.5 per cent more flights and transport services, as well as big rises in health services, spending in pubs and restaurants, entertainment, clothing, and so on.

But a close look shows something strange. In fact, growth in spending has not risen. In the past six months, it has been the slowest since 2010. What's new is that inflation has disappeared.

In those six months, the bureau says, consumer prices grew just 0.1 per cent. So virtually all our spending growth must have been used to buy more of everything. Really? Yes, we bought more bananas, but all the other stuff?

A second surprise: productivity shot up. With all the job cuts, hours worked fell 0.6 per cent. But output grew 1.4 per cent, so that means we produced 2 per cent more for every hour worked. The bureau estimates productivity shot up 4 per cent in the year, and 5.3 per cent in the market sector. That's hard to swallow.

Third surprise: the bureau says all sorts of industries are enjoying unexpected booms.

Government spending grew a modest 1.2 per cent over the year, yet the output of public administration shot up 5 per cent. You wonder how they work that out.

Mining had the fastest growth (11.3 per cent) and agriculture (10.6) was close behind. Finance recorded 5.4 per cent growth, despite job cuts and little credit growth. The professions, transport and wholesale trade all grew more than 5 per cent. Even on these figures, Australia is still a two-speed economy. Over the year, demand grew 10 per cent in the mining states, and 2 per cent in the south-east, where 70 per cent of Australians live.

The figures suggest Victoria was in recession in the second half of 2011, but leapt out of it in the March quarter, thanks to us consumers. Uh-huh.

Wayne Swan wants us to take pride in these figures. I would if I could believe them.


WHERE THE GROWTH IS:

BY STATE

Growth in demand, year to March

$b %

Resource states

WA 5.8 13.6
Queensland 5.2 7.8
NT 0.7 15.1
Total 11.8 10.2

South-eastern states

NSW 2.1 2.1
Victoria 1.5 1.9
ACT 0.4 3.2
SA 0.2 0.7
Tasmania - 0.02 - 0.2
Total 4.2 1.9

BY SECTOR

$m %

key sectors of growth
Consumer spending 7.8 4.2
Engineering construction 7.7 53.0
Exports 3.9 6.3
Machinery & equipment 1.5 7.5
Fed govt investment 1.1 21.2
Business building 0.8 11.8
and those pulling us back
Imports - 8.3 - 11.5
State govt investment - 2.3 -15.3
Housing construction - 1.1 - 6.2

BY INDUSTRY $m %

Mining 2.7 11.3
Finance 1.7 5.4
Professions 1.1 5.3
Health 1.1 5.5
Construction 0.9 3.5
Transport 0.9 5.1
Government 0.8 5.0
Agriculture 0.8 10.6
Wholesale trade 0.8 5.5
but not
Manufacturing 0.2 0.6
Electricity - 0.1 - 3.0
IT/communications - 0.1 - 1.2

Source: Australian Business of Statistics

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The jobs growth figures are wrong - here's why

The official jobs figures published by the Bureau of Statistics have significantly underestimated recent job growth, due to forecasting errors that first overstated, then understated, the growth in the adult population.

The errors, which have serious implications for economic policy, began when the number of foreign students living in Australia fell rapidly after immigration laws were tightened in late 2009.

The unforeseen fall at first led Bureau forecasters to greatly overstate population growth — and When it realised the error, rather than correct it by revising the previous jobs figures the Bureau decided to understate population growth in future forecasts, depressing the labour force figures. These then reported a net loss of 900 jobs in 2011.

On one estimate, once the figures are adjusted for the erroneous forecasts, at least 100,000 of the jobs supposedly created in 2010 in fact arrived in 2011.

The errors are not in the official estimates of population growth, which are issued six months after the period to which they apply. They are in the estimates — in effect, forecasts — of the adult civilian population used in the labour force figures.

Usually the two series move together. But in the year to September 2010, population growth (including children) shrank rapidly, from 433,000 to 325,000, whereas the forecasts for the labour force estimated that adult population growth would remain steady at 394,000.

In the year to September 2011, that suddenly reversed. Actual population growth was little changed at 320,000, but the Bureau slashed the forecasts used in the labour force figures from 394,000 to 224,000.

Since most people interviewed in the labour force survey are employed, the effect of understating population growth was to understate employment growth.

The Bureau defended itself yesterday in an article published with the labour force figures, arguing that its main focus is on getting a correct reading of the unemployment rate and workforce participation rate — which come straight from the survey data.

But its approach seriously misled readers, commentators and ultimately the public, about the size of the slowdown in the jobs market — and hence, the true state of the economy.
One prominent commentator seized on the reported fall in jobs to describe the labour market as being in its worst shape since 1992.

The Australian Statistician, Brian Pink, yesterday stood by the Bureau’s figures. “We do not believe that the employment growth that we have shown has been biased in some way by the method - that’s our view,” he said.

Senior economic officials are aware that the data is flawed, but have refrained from making any public statement, so as not to reduce confidence in the Bureau.

But tax data released with the Victorian and Federal budgets confirm that the jobs markets in 2011-12 has been stronger than the official figures show.

The Bureau estimates that jobs in Victoria fell by almost 20,000 in the first nine months of 2011-12, with 38,000 full-time jobs lost. Yet the state’s payroll tax revenue rose 7.7 per cent in that time, with no fall in jobs.

Tuesday’s Federal budget showed PAYE income tax revenues up 9.7 per cent in 2011-12, faster than the 9.4 per cent growth in 2010-11. While officials believe job growth has weakened in recent months, the tax take is strong evidence that the Bureau’s estimates are wrong.

Westpac senior economist Justin Smirk said the bank’s economics team is uncomfortable with the way the Bureau has tackled its problem.

‘‘It does raise concerns about the accuracy of the data, and we still have questions about the actual employment levels and their growth path’’, he said.

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The CPI is not a credible basis for policy action

TOMORROW the Reserve Bank board will decide whether to raise Australia's interest rates, lower them, or leave them unchanged. The consensus among economists and markets is that it will leave them unchanged. You hope they're right but it's not certain.

There is no data the Reserve focuses on more than the consumer price index. Its job is to keep inflation low, and the economy growing. The CPI measures whether or not it is succeeding. If inflation starts climbing too fast, it signals that interest rates need to rise.

Last week's CPI figures seemed to send that signal. The CPI climbed 0.9 per cent in the June quarter, and 3.6 per cent in the year to June well above the Reserve's target to keep inflation, on average, between 2 and 3 per cent over the long term.

Banana prices had a bit to do with that. But what really mattered was that the Reserve's measures of underlying inflation rose 0.9 per cent in the June quarter, after similar rises in March. The annual growth in underlying inflation was within the target range, at 2.7 per cent, but in the first half of 2011 it grew at an annualised 3.5 per cent again, well above the target.

Bankers Trust chief economist Chris Caton summed it up well. If this was the only data you had on the economy, he said, the Reserve would have a clear-cut case to raise interest rates. But it is not the only data we have. And the closer you look at it, the less clear-cut the case is.

The other data tells us that the economy is in a weak condition, outside mining and mining investment. That means the surge in underlying inflation is more likely to be a passing blip a rebound from very low rises in 2010 than the start of a dangerous rise.

A close look at the inflation data confirms this. The weightings given to items in the CPI are based on an old survey of household spending. But the Australian Bureau of Statistics changes them to reflect price rises and falls, assuming that we keep buying the same quantities of goods regardless of price changes. That defies reality, and over time, creates a bias that overstates the inflation rate, as the index increases the weight of items that rise in price, and decreases the weight of items with falling prices.

(We leave aside the third reason to be wary of pulling the interest rate trigger: the slowing global economy, and the serious risks facing it as a result of the prolonged budget standoff in Washington, and inevitable debt defaults by governments in Europe. This is no time for crazy braves.)

What do we know about the economy that should make the Reserve sit and watch for now? Plenty. The strength is largely confined to mining and mining construction. Weakness has now engulfed most of the economy. The broader-based the indicator, the clearer it is.

Jobs growth has slowed to a virtual halt. Even on the smoothed trend figures, the bureau estimates that Australia added just 38,000 jobs in the first half of 2011, compared with 188,000 in the second half of 2010.

There is no light on the horizon. The ANZ job advertisements index says job ads have been shrinking since April. The bureau's employer surveys report job vacancies shrinking since February.

The Reserve's own figures show credit growth has fallen to recession levels. In the first half of 2011, credit basically, the amount we owe the banks rose at an annualised rate of just 3 per cent. Even borrowing for housing is growing at just 5 per cent. Borrowing by business is flat.

Consumer confidence has fallen back to GFC levels. Business confidence is below sea level. In this environment, you need a very, very good reason to raise interest rates and the CPI is not it.

It shows inflation is low in most of its 90 sectors of consumer spending. In the year to June, a third recorded falling prices, a third recorded rises within or below the target, and a third recorded price rises above 3 per cent.

It is a similar story even in the first half of 2011. The unweighted median price rise of those 90 items was well inside the Reserve's target zone. But the weighted median was outside it, partly because the index over time overstates our spending on items with rising prices, and understates spending on those with falling prices.

Take bananas and computers. When this series began in 2005, fruit and vegetables comprised 2.1 per cent of our spending, and computers 1.5 per cent. But fruit and vegetable prices have soared since cyclone Yasi, while computers now pack far more power than in 2005.

But the bureau assumes we still buy just as many bananas, even at $12 a kilo, and buy 2005-strength PCs very cheap. So the CPI is estimated on the basis that fruit and vegetables now comprise 3 per cent of our spending, and computers just 0.5 per cent. And that is wrong.

Likewise the CPI seriously overstates our spending on tobacco, and understates spending on mobile phones. And when the weights are wrong, that means the data itself is also wrong.

The Reserve faces a tough call. But it must not jump at shadows. This is a weak economy; it has time to wait. The next CPI figures will be based on a 2009-10 survey of household spending. That will restore the CPI as a credible basis for policy action.

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