Seven per cent.

Some things need no further explanation. Like the London Star in 1930 having “He’s Out!” on its front page, because everyone knew it referred to Bradman, 7% is all you need to state in an economics article this week for everyone to know you are referring to the fall in our GDP.

Stunning? Record-breaking? Horrific? Catastrophic?

Pick your description. They are all bad. The previous record quarterly fall of 2.0% was utterly smashed. The 6.3% fall on where we were this time last year is nearly double the previous worst annual fall of 3.4% that occurred during the 1983 recession:

What it means is that we have in effect lost four years of growth. The last time the economy was this size was September 2016.

We are, of course, in a recession, but then we have been since March. We don’t need the GDP to tell us that – the increases in unemployment and underutilisation did the telling:

The massive fall in production and consumption is of course driven by the pandemic, but what is clear is that this is really a household recession.

In June, households reduced their spending by 12.1% – smashing the previous record fall of 1.9% that occurred in the last quarter of 1975.

Because household spending makes up around half of the total economy. that meant the fall contributed 6.7% point of the fall in GDP:

All that kept the economy from falling by more was the fact we cut our imports (which is actually a positive for GDP) and government spending on stimulus measures, such as the increased jobseeker payments.

Crucially, government infrastructure spending is having a negligible impact.

When we take away the impact of international trade and government spending, the private sector economy actually fell 12% – more than double the previous worst fall:

In the June quarter, as happens in every recession, we stopped spending and saved more. The difference this time is the amount was well beyond anything that has previously happened:

Consider in the 1983 recession the biggest drop in annual household consumption was 0.2% and in the 1990s recession spending never went backwards, it just slowed to a 0.1% annual growth.

In June, households spent 12.7% less than they did a year ago.

Wages of course fell through the floor, down 2.5% due to the fall in jobs. But company profits rose 11.4%.

This is because the jobkeeper payments are treated as business income. Now that might be a fine thing when it comes to helping businesses stay afloat, but the ALP’s Andrew Leigh has been arguing that it has also seen companies reward themselves with large bonuses despite the crashing economy.

Leigh told parliament on Monday that “Accent Group received $13m in jobkeeper and gave CEO Daniel Agostinelli a $1.2m bonus” and that “Star Casino received $64m in jobkeeper and gave CEO Matt Bekier an equity bonus worth $800,000”.

The drop in wages means that for the first time in 60 years less than half of national income is going to employees:

One interesting aspect is that despite the massive fall in wages, household incomes actually rose. This is because of the doubling of the jobseeker payment and other benefits which saw a 41% increase in social assistance benefits:

Clearly without this boost, the situation would have been much more dire.

If we exclude social benefits, real household disposable income per capita would have fallen by 2% in the June quarter rather than actually rising by 2.7%:

It’s a good reminder that when the private sector collapses, the public sector needs to step up. It also demonstrates what may occur should the government continue with its plans to cut back the jobseeker amount. Absent a sudden increase in jobs, household incomes will likely fall over the next six months.

So all in all it is terrible news.

The government argues that it is not as bad as it could have been, and not as bad as elsewhere – which is certainly true compared with the OECD:

But given there is little sign of the global economy reviving, nor much optimism that we can put this pandemic behind us here in Australia, it seems very odd that a government which boasts that what it has done has made things better than elsewhere, would also be moving to remove or reduce those measures.

While the 7% fall is bad enough be itself, we should remember that we would have normally been expecting the economy over the past six months to have grown by around 1.25%. It means we not only have fallen compared with where we were, but also by more compared with what we would have been:

The economy is currently around 8.5% smaller than what we would have expected it to be, and to get back to the pre-pandemic trend in five years, the economy would need to grow at around 4% each year.

We have not had such growth this century and it will not happen without massive government stimulus. And until we are well on the path to square, thoughts of winding back any stimulus should be dismissed.