Figures released last week on capital and consumer spending in Australia suggest there remains a strong disconnect between the state of the economy for people and businesses. That is also likely to be found in the GDP figures to be released on Wednesday.

The GDP figures for the June quarter are not expected to show overwhelmingly strong quarterly growth, but in annual terms, the economy is likely to have grown at an above average pace.

This is because the past three quarters have seen quite strong growth of 1.0%, 0.7% and 1.1%, whereas the June quarter in 2015 had growth of just 0.3%.

But that weak quarter will be dropped in the latest annual growth count, thus should the June 2016 quarter have growth stronger than 0.3%, the annual rate should actually rise (unless there are some revisions to the other numbers).

The consensus estimate for Wednesday quarterly growth is 0.4%, so annual GDP will likely increase and take away some of the sting of what will actually be a pretty weak result (in the past 20 years, average quarterly growth is 0.8%).

The new normal: why we need to shake up economic policy | Greg Jericho Read more

Given that the latest data released on capital expenditure and retail sales, that growth is once again likely to be largely driven by exports rather than demand with Australia.

Last week’s capital expenditure figures which measure the amount of investment within the economy were, to put the sugar coating to one side, awful.

Mining investment fell 34.5% in the past year. The manufacturing industry also declined 7%, and while investment in the “other selected industries” rose by 4.1%, and total non-mining investment grew by 2.8% it was nowhere near enough to cancel out the mining investment fall. Overall, new investment declined 15.2%:

Clearly the story is about mining. Investment in that industry has fallen by 56% since its peak of September 2012. By contrast, non-mining investment since then has grown by just 5.9%, but it now is by far the largest of the two sections of the economy:

And the news isn’t great for the 2016-17 financial year either. The latest estimate (the third of seven that occur throughout each year) for total investment in 2016-17 is the lowest such estimate since 2009-10 – and that is in nominal terms, ie not accounting for inflation:

To an extent there’s not much anyone can do about the fall on the mining side of things. Sure, politicians love to take credit for the booms, but the reality is our mining sector rides the waves of the iron ore, coal and LNG prices, and those waves are now crashing on our shores:

Thus our focus falls on the non-mining sector. Now the good news is that while the figures there have not been anything too vigorous, the outlook at least shows a strengthening pulse.

The third estimate for non-mining investment in 2016-17 is up 4.5% on the same estimate for 2015-16. That’s the second best growth in the past six years (although that doesn’t say much, given four of those six years saw a decline).

But even better, the third estimate is 28% above the first estimate for 2016-17 done back in January-February. As a rule, each estimate sees an increase in investment expectations – because companies are surer about what they will do. But the increase is among the best seen in the non-mining sector in the past 20 years – so businesses are becoming much more confident than usual about their investment decisions:

And that somewhat good news (which still doesn’t hide the fact that non-mining investment is still expected to be lower than it was in 2008-09) is a nice fillip given the overall poor capital spending figures are largely replicated by weak consumer spending.

The latest figures out last week showed growth in consumer spending on retail items was absolutely flat in July in seasonally adjusted terms. The trend figures weren’t much better – up just 0.1%:

The biggest drag on the retail spending growth has been that of department stores and household goods (which includes electronic goods).

The annual retail spending growth of just 2.7% is the worst since August 2013 and is well below the 20-year average of 5%.

But one of the problems with the retail trade figures is that they are done in nominal dollars – because we do like to know how much money we are actually spending in the shops and restaurants. This means in times of low inflation the growth in money spent might not reflect actually weak levels of buying; rather, that people are able to take advantage of low prices.

Thankfully, the ABS puts out quarterly figures that chart the volume of spending. We can use the latest figures to June to get some sense of whether the low retail trade growth is just a reflection of good value or whether we really have shut our wallets.

Alas it does appear we have slowed our spending. In the past year, the amount of things we purchased increased by just 2.0% – the lowest amount since June 2013.

The picture of Australia’s spending on both capital items like buildings, machinery and equipment and on consumer items suggests that regardless of the GDP figures on Wednesday, the economy appears rather fragile. Weak investment and demand is translating into weak employment and wages growth and thus into weak spending growth.

It’s a cycle that is unlikely to be broken soon. And once again on Wednesday most people hearing that our economy is growing at above average levels will only shake their heads in disbelief at the disconnect between that growth and what they are experiencing themselves.