June 9, 2022 by Dymphna

The dirty secret in the GDP data

If the economy is going great guns, why does it feel like I’m going backwards?

So we got the first quarter GDP data last week. It was pretty good all things considering.

Defying expectations, and flying over a quarter marked by Covid outbreaks and massive floods, GDP delivered. The economy grew by 0.8% in the quarter and a pretty chipper 3.3% over the year.

That’s a good result.

The numbers were pretty strong across the expenditure classes, with consumer demand making a hefty contribution.

But don’t let the economists fool you. Houses are still the central picture. There’s been a sustained boom in renovation spending and stamp duty costs.

However, there’s a dirty secret at the heart of these rosy numbers. Real average compensation per employee was down sharply and is now back at where it was in 2011.

So, you know, that’s not an awesome result. Despite all the economic growth we’ve seen over the past decade – despite the boom in the Covid snap-back – despite all of that, workers aren’t earning a single real cent more.

(You know that when I’m talking about ‘real’ wages, I’m talking about wages that have been adjusted for inflation. So the dollar values of wages is up, but the purchasing power of wages is not.)

So that raises the question, why bother? What’s all this economic growth for if it’s not making anyone better off? What are we even doing here?

That said, some folks are doing better. Business profits are up a massive 18% over the year, leaving wages for dead.

What worse, with inflation starting to give every economist in the country the willies, you can bet that there’s going to be a lot of push back on wages rising.

That’s even though that unit labour costs (how much labour cost is associated with each ‘unit’ of GDP) is still falling through the floor, thanks to productivity growth.

If inflation is a problem, it’s not because wages are earning too much money.

But what are you going to do?

This is the system we have. Results like this are a feature, not a bug.

And as much as we want to believe that if you just put your head down and keep working hard, you’ll get ahead eventually – as much as we want to believe that, the data just doesn’t tell us its true.

If you want to get ahead – particularly if you want to get clear of the daily grind completely and live on your own financial terms – there’s a reality you have to face.

The system is not going to do it for you.

You’re going to have to do it yourself. You’re going to have to get smart, get educated and get creative.

Find people with the results you want, and then do what they’re doing.

Because I tell you, if you’re just waiting for the system to look after you, you’re going to be disappointed.