Economic rebalancing is continuing slowly throughout Australia despite a downturn in resource construction, according to ANZ's latest 'Stateometer', with Queensland a big improver among the states.
The September reading shows the services sector is doing a lot to assist the broader Australian economy and has helped lift employment conditions not only in Queensland but also in New South Wales, Victoria and Tasmania. These states are, by no coincidence, showing the strongest economic performances on the ANZ Stateometer.
A dominant feature continues to be the strength of NSW activity. The largest state is trumping all others, with the NSW index at a record level. The upswing in residential construction and sharp depreciation in the currency are supporting activity, particularly in Sydney.
Residential construction has and will continue to be important to supporting employment in construction and several services industries. Commercial construction outside of mining should also play a greater role for some states, with the outlook for non-residential construction looking better in some sectors such as tourism and government-backed infrastructure.
The results indicate NSW may be approaching the top of the business cycle. This isn't bad news; we expect economic activity to remain above trend for some time. How the economy adjusts to the cooling housing market and slow-down in residential construction will be the key to future growth momentum.
The ANZ Stateometer is an indicator that synthesises a large volume of monthly data to give our clients a one-stop-shop for current state and territory economic conditions.
We've included 16 economic indicators that cover labour market conditions, household and business activity and prices and analysed them using a statistical technique called principal component analysis. PCA allows us to reveal common trends in the data, and in our case, the underlying pulse of domestic economic activity for each state and territory.
Kirk Zammit is an economist at ANZ and Cherelle Murphy is Co-Head of Australian Economics at ANZ.