Gross domestic product (GDP) rose by 0.3 per cent in the June quarter, in real, seasonally adjusted terms, national accounts data on Wednesday from the Australian Bureau of Statistics (ABS) showed.
The long-run average for GDP growth, and the pace needed to keep unemployment steady, is about 0.8 per cent per quarter, so the second quarter outcome is well off the pace.
The tiny quarterly rise lowered the annual growth rate to 2.7 per cent but the real momentum in the economy is likely to be even weaker than that.
The ABS trend measure for non-farm GDP, a better guide to the underlying trend and the outlook for employment growth, has undergone a dramatic slowdown to 2.4 per cent on an annualised basis from 5.6 per cent.
It is no surprise then that the economy has slowed, amid high interest rates, slumping asset prices, rising oil prices and the global credit market crisis.
Households have served as the shock troops in the war on inflation waged by the Reserve Bank of Australia (RBA) during the surge in economic growth of the past five years or so.
Household final consumption spending recorded a rare decline in the June quarter, the first since 1993, dropping by 0.1 per cent in real terms over the three months.
At the same time, the minerals boom is adding to national purchasing power.
While GDP has risen by 2.7 per cent over the past year, real gross domestic income - the real value of income earned from GDP - rose by 6.3 per cent.
The reason for the gap between the measures is that the price of Australia's output has risen sharply compared with the price of what it has purchased with the income earned.
GDP includes exports but not imports, while spending includes imports but not exports - and the price of exports has risen sharply while import prices have not.
In fact, the terms of trade (the ratio of export prices to import prices) has risen by 15.6 per cent in the past year, the biggest annual increase since 1973.
The boom in real income will make the RBA cautious about dropping interest rates too quickly.
Its main worry at the moment is that wages will pick up in response to a long surge in consumer price inflation, helped along by a tight labour market.
However the labour market responds to output, not spending, and the current pace of GDP growth means employment growth will not be enough to keep unemployment from rising.
That will take the heat out of the labour market over the coming year and should lay the groundwork for more interest rate cuts.
Despite the cautious prompted by booming real income, the RBA should be spurred on by further signs the economy continued to slow through the middle of this year.
Rather than trying to bring the economy back to earth, the RBA's focus is now shifting toward the avoidance of a crash landing.
And the cavalcade of data is a continual reminder that such an outcome is by no means a trivial risk.
Shortly before the GDP figures were released on Wednesday came news that the Australian Industry Group/Commonwealth Bank Performance of Services Index had fallen for the fifth month in a row in August.
Both the index, and the survey's measure of sales, hit the lowest levels in the five year history of the series.
The results of the survey echo the Australian Industry Group-PricewaterhouseCoopers survey of manufacturers released on Monday that showed three consecutive substantial monthly declines in activity.
So the weak GDP figures are not likely to be a flash in the pan
