The crucial measure dragging down the NSW economy

A key measure of economic activity in NSW has slumped into the red as higher interest rates and cost of living pressures take a disproportionate toll on spending in the state.

Australia’s quarterly economic report card, released by the Bureau of Statistics on Wednesday, was especially gloomy for Australia’s most populous state.

Household spending is falling in NSW. Credit: Steven Siewert

State final demand – a broad gauge of spending across private and public sectors – fell by 0.4 per cent in NSW over the June quarter, the worst result since the pandemic lockdowns of 2021.

NSW was the only state or territory where this crucial indicator was negative.

Senior economist at Indeed Callam Pickering said the contraction in final demand was “ugly” and showed that consumers were doing it especially tough in the state.

“The NSW economy is weaker than other states and territories in large part due to weaker household consumption because of cost of living pressures,” he said.

Household spending in NSW fell by 0.6 per cent in the June quarter, which was also weaker than any other state or territory.

The spending slump was driven by a fall in spending at hotels, cafes and restaurants (2.1 per cent down in the quarter), transport services (-3.9 per cent) and the purchase of vehicles (-4.0 per cent).

Despite the state’s housing supply crunch, dwelling investment dropped by a hefty 4.1 per cent in the June quarter, also weaker than any other state. Business investment growth in NSW was also soft.

A 3.8 per cent drop in NSW public infrastructure spending through the quarter also contributed to the slump in state final demand, although there was a 1.6 per cent rise in general government expenditure.

The weak final demand figures for NSW in the June quarter come as other indicators point to a deterioration in economic conditions in the state.

During the past year, the unemployment rate in NSW has climbed from historic lows of about 3 per cent to 4 per cent. The number of job advertisements in Sydney has been weaker than in other capitals pointing to further increases in the state’s jobless rate.

There were 183,300 people looking for work in NSW in July – nearly 38,000 more than a year earlier.

Business failures in NSW rose more than 40 per cent in the year to June as higher interest rates sapped the state’s economic momentum. NSW firms made up 42 per cent of all insolvencies in Australia last financial year, even though the state’s share of the economy is only about one-third.

Over the year to June 30, state final demand in NSW rose by just 0.2 per cent despite a strong population increase in the state over that period. That compares with final demand growth of 1.4 per cent in Victoria, 3.9 per cent in Western Australia and 8.1 per cent in the Northern Territory (due largely to mining investment).

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