Australia versus America: ten numbers that tell a different economic story

Australia and the United States currently have remarkably similar headline inflation and wage growth, but beneath those numbers the two economies are moving in quite different directions.

July consumer price inflation was 3.5% in Australia and 3.4% in the United States, while wages increased by exactly 3.2% in both countries over the year to the June quarter.

The major difference is productivity.

Australian GDP per hour worked increased just 0.3% over the year to the March quarter. Comparable US nonfarm-business labour productivity increased 2.8%. Australia has nevertheless generated much stronger employment growth: employment increased 1.3% over the year to July, compared with a decline of about 0.6% in the US household survey.

The key distinction is therefore not simply economic growth, but how that growth is being generated. Australia continues to add workers much faster than it adds output per hour worked. America has recently produced almost the reverse combination.

That divergence also helps explain the unusual monetary-policy contrast. Over the past year the RBA has raised its cash rate by 75 basis points, while the Federal Reserve has cut its target range by 75 basis points.

The headline numbers look similar. The economies underneath them do not.