Overall results

How are Australia’s states and territories performing? Each quarter CommSec attempts to find out by analysing eight key indicators: economic growth; retail spending; equipment investment; unemployment; construction work done; population growth; housing finance and dwelling commencements.

Just as the Reserve Bank uses long-term averages to determine the level of ‘normal’ interest rates; we have done the same with key economic indicators. For each state and territory, latest readings for the key indicators were compared with decade averages – that is, against the ‘normal’ performance.

NSW has retained top spot as the best performing economy, edging a little further ahead of Victoria. Both states are maintaining a healthy lead over the other states and territories.

The big change over the past quarter has been the lift of the ACT economy to equal third position alongside the Northern Territory. Western Australia has dropped from fourth to fifth. But there is little to separate the ACT and the Northern Territory in the second grouping of economies.

In the third grouping of state and territory economies, Queensland is sixth ranked, ahead of the South Australia (seventh) and Tasmania (eighth).

NSW has retained its top rankings on population growth, retail trade, dwelling starts and housing finance but now adds unemployment and equipment investment to the list. NSW is still fourth-ranked on construction work done and fifth ranked on economic growth.

Victoria has lost a little ground on NSW but is solidly in second spot on the economic performance rankings. Victoria’s main strengths are population growth and housing finance (second ranked) and dwelling starts and retail trade (third ranked on each indicator).

The Northern Territory remains the third ranked economy, but now shares that position with the other territory – the Australian Capital Territory.

Northern Territory is top ranked on construction work done and is second ranked on economic growth, business investment and unemployment. But the ‘top end’ economy is last ranked on population growth and housing finance.

The ACT economy lifted to equal third courtesy of improved rankings on equipment investment and dwelling starts. The ACT is also third ranked on economic growth, population growth and housing finance.

Western Australia is in fifth spot on the economic performance rankings. While top ranked on economic growth, it is bottom ranked on equipment investment and unemployment.

Queensland is now in sixth position on the economic performance table. Best rankings are retail trade and dwelling starts (fourth ranked on each indicator).

South Australia remains in seventh spot on the economic performance rankings. South Australia does best on population growth and housing finance (both fourth ranked) but is seventh or eighth on three indicators.

Tasmania remains at the bottom of the Australian economic performance table. Tasmania is third ranked on unemployment (previously first) and weakened from third to sixth on housing finance.

Looking Ahead

Currently we look at eight indicators to get the broadest assessment of economic performance. If we added new motor vehicle registrations to the list the only change in the overall economic rankings would be the ACT taking third position on its own.

NSW has a solid grip on the top ranking of economic performance. Unemployment has improved while population growth is above long-term averages, thus providing solid momentum to the economy.

Victoria also still has a strong grip on the second ranking but hasn’t been able to narrow the gap with NSW. Victoria still has the strongest population growth in the nation, underpinning retail and housing activity.

The ACT has been the big improver in the rankings and a sharp lift in dwelling starts is a clear reason for the improvement. Stronger housing activity will support the job market and retail spending over 2016.

The Northern Territory will face challenges in the next few years as key resource projects are either completed or near completion. Slow population growth, weak demand for housing loans and a sharp fall in dwelling starts will constrain economic momentum.

Western Australia continues to slip in the performance rankings, having relinquished top spot in October 2014. Slower population growth and higher unemployment will constrain activity in the housing market.

Queensland remains in the third tier of economies alongside South Australia and Tasmania. Encouragingly, however, unemployment has fallen to two-year lows in trend terms. And dwelling starts have lifted to 7½ year highs.

The South Australian job market has improved in the past eight months. If the positive trend continues, then there is scope for an improvement in retail spending.

The Tasmanian economy continues to struggle for momentum. In October, trend unemployment had fallen to near 4-year lows. While unemployment has lifted in the past two months, real wage growth remains healthy.

Methodology

Each of the states and territory economies were assessed on eight key indicators: economic growth; retail spending; equipment investment; unemployment, construction work done; population growth; housing finance and dwelling commencements.

The aim is to find how each economy is performing compared with “normal”. And just like the Reserve Bank does with interest rates, we used decade-averages to judge the “normal” state of affairs. For each economy, the latest level of the indicator – such as retail spending or economic growth – was compared with the decade average.

While we also looked at the current pace of growth to look at economic momentum, it may yield perverse results to judge performance. For instance retail spending may be up sharply on a year ago but from depressed levels. Overall spending may still be well below “normal”. And clearly some states such as Queensland and Western Australia traditionally have had faster economic growth rates due to historically faster population growth. So the best way to assess economic performance is to look at each indicator in relation to what would be considered ‘normal’ for that state or territory.

For instance, the trend jobless rate in the ACT of 5.2 per cent is equal second lowest of all economies. But this jobless rate is actually up 44.4 per cent on its ‘normal’ or decade-average rate of 3.6 per cent, ranking it seventh on this indicator – that is, one of the worst, not best performing states & territories on the indicator.

Trend measures of the economic indicators were used to assess performance rather than more volatile seasonally adjusted or original estimates.