Australia’s eastern seaboard, particularly New South Wales is benefitting from multiple tailwinds as the national economy continues its rotation from mining to services.
One factor that has provided substantial support to the New South Wales economy has been its substantial population, which is home to roughly 32 per cent of Australians. Furthermore, this population is now growing in line with the national average of 1.6 per cent, which is good for New South Wales given its historic underperformance.
The growing service sector has benefited the New South Wales labour market, where job growth has been lifting consistently over the past six months and the state’s unemployment rate is the lowest across the country at 5 per cent, below the national average of 5.6 per cent. The prospects for further growth in the New South Wales labour market is high given the buoyant business conditions and outstanding job vacancies which are the highest nationally at 76,600. Annual wage growth is currently sitting at 2 per cent, in line with Victoria and above the growth of Victoria and the national average of 1.9 per cent.
A shift to lower interest rates has flowed through directly to the New South Wales residential housing market and the associated wealth effect for households. Sydney’s house price index remains the highest nationally while growth in 2Q17 ranked equal first with Melbourne at 13.8 per cent. Looking forward to future residential supply, the quantum of residential construction work done in New South wales remains the highest nationally at almost 6 billion dollars in the latest June 2017 release, although the rate of growth has slowed to 5.64 per cent annually, down from the recent highs of over 20 per cent.
However, it’s not just the residential sector that has been fuelling growth in the New South Wales economy. The economic prospects for the state are being enhanced by unprecedented levels of infrastructure spending with a combined project value over $60 billion, comprised largely by road and rail infrastructure, but supplemented by other social infrastructure type developments. These projects will enhance domestic business productivity together and enhance the attractiveness of foreign investment within the state.
In terms of retail, New South Wales has maintained its top spot for spending, capturing 33 per cent of the nation’s monthly retail sales volumes. New South Wales is trailed by Victoria (26 per cent) and Queensland (21 per cent). The rate of sales growth has typically been more buoyant in the south east, with New South Wales growing 2.91 per cent over the year to August 2017, while Victoria recorded 3.41 per cent retail sales growth over the same period. Australia’s retail sales growth is becoming increasingly skewed to non-discretionary spending however in New South Wales, we have witnessed strong growth in household goods and dining, together with supermarket sales.