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Revenue generated by Australia's 2.2 million enterprises in 2013 was some $4.4 trillion. Most of that (around $2.5 trillion) came from intermediate markets, with goods and services on the way to final markets.
A lot of double or multiple counting is involved in these intermediate markets along the input-output chain to the final customers, be they local or overseas. But the final markets are what we are taking a close look at in this report.
In our new age, which supplanted the Industrial Age in the mid-1960s, we have become a market-oriented economy, not a production-pushed one.
The customer is king (or queen), not the producer: It's a buyer's market most of the time, not a seller's market.
There are basically three final markets, as the first chart reveals.
The three final markets are consumption markets, capital markets and export markets. In 2013, consumption dominated by accounting for about 60% of the overall market value of $1.9 trillion. Capital investment came in second at about 23% and exports third with 17%. Each market subdivides into many sectors, of course.
The relative importance of these markets has changed steadily over the past 50 years, as the second chart shows.
This chart shows the slow dilution of the importance of consumption expenditure by the steadily increasing share of exports, with the capital expenditure market waxing and waning around a one-fifth share over the decades.
Historically, only one of these three markets can trigger a recession: capital expenditure. It is the most volatile and can fall by such force as to make it virtually impossible for consumption growth or export growth to offset the damage.
This is the reason our new Federal Government is looking for dig-ready and other opportunities to offset the decline in mining investment, which has single-handedly accounted for up to 25% or more of all investment spending recently. Only the massive investment in utilities (electricity, gas, water and telephony) way back in the 1960s matched this dominance.
The most reliable market, as well as being the biggest, is consumption expenditure. That said, its growth over the past half-century has slowed from an average 4.4% per annum in the first half of that period to 3.0% per annum over the past 25 to 26 years, and is now the slowest growing of the three markets.
However, consumption expenditure has never fallen into negative territory in the lifetime of Australians born after World War II. So, contrary to conventional wisdom, consumers don't go into reverse gear, stop spending with chequebooks or credit cards and cause recessions. Doesn't happen.
The biggest sector within the consumption market is household consumption, shown below as part of the total income of households. The personal tax component and the embedded GST taxed in the other items cover most of the government-consumed expenditure component (on our behalf).
The biggest change over the decades has been the shrinking share allocated to goods, be they durables or non-durables. We are clearly a services-oriented consumer society in the 21st century.
The fastest growing and second most stable market is exports. It is the smallest market in 2013 at 17% of the total final market. Yes, it has its occasional negative growth dip, but not often and not serious.
The fourth chart shows the composition of our exports in 2013.
In the 21st century, minerals have come to dominate these exports and in 2013 accounted for about 49% of all exports (about 57% if we include smelted metals). Manufacturers came in second, having not long ago been our major export.
Tourism and other services came in third, and could overtake mineral exports by the end of the next decade. In last place were agricultural exports, at just 8%, having dominated our export drive for almost two centuries.
The third market is the investment (capital expenditure) market. It is the most volatile of the three markets, the second biggest and yet the vital one that pulls the economy along with new and more productive capacity.
Capital expenditure growth has averaged a very strong 5.3% per annum over the past quarter-century. However, as mentioned earlier, it is this market's habit of sharp dives in investment that can trigger a recession. They happen on a cycle of some 8.5 years (i.e. the long business cycle).
The most severe falls occurred in 1982-83 and 1991-92, with falls of 10%, thereby causing the only two recessions we have had over the past seven decades - although there have been a few near misses in 1975-76 and 2000-01.
The final chart shows the composition of capital expenditure in 2013.
Heading down the tail end of 2013-14 into 2014-15, the RBA has suggested some confidence in the economy.
Clearly, it is recovering consumption expenditure and strong exports leading the way. All we need to do is make sure our capital expenditure does not fall by 8% or more to negate the other two healthy markets. A serious challenge for company directors and government ministers.
This information was compiled ,researched and provided by IBIS World Melbourne for the benefit of the Aibb Members and Business Owners .