Originally published by AMP Capital
- September quarter wages growth (excluding bonuses) was 0.6% which was in line with market expectations and up a bit from 0.5% in the June quarter (which had been revised down from a previously reported gain of 0.6%). This took annual growth up to 2.3% year on year from 2.1% in the June quarter.
- Private sector wages growth (excluding bonuses) remains slightly lower than the total at 0.5% quarter on quarter or 2.1% year on year, so the public sector is continuing to see slightly faster wages growth.
- Wages growth including bonuses accelerated to 2.7% year on year in the September quarter suggesting companies may be preferring to pay higher bonuses when they can rather than significantly boost underlying wages – particularly in the private sector.
- Wages growth is strongest in Tasmania (at +2.6%yoy) and Victoria (at +2.5%yoy) and weakest in Western Australia (at +1.6%yoy) and the Northern Territory (at +1.7%yoy). Wages growth is strongest in health (+2.8% yoy) and education and utilities (both at +2.7%yoy) and weakest in mining and retail trade (both at 1.8%yoy).
The good news is that wages growth has continued to lift from its 2016 low point of 1.9% year on year. However, the lift in wages growth largely owes to a faster increase in the minimum wage for 2017-18 of 3.3% which was up from 2.4% for the previous year and now to a rise of 3.5% for this financial year. Were it not for the acceleration in minimum wage increases wages growth would still be running at around 2% so there is still little evidence of significant pick up in underlying wages growth.
Fortunately at least the uptick in wages growth to 2.3% when inflation is just 1.9% means that real wages growth is at least positive. That said at 0.4% year on year real wage growth is still very small and won’t provide much of a boost to consumer spending.
Falling unemployment should help contribute to a pick-up in wages growth but with the level of unemployment and underemployment remaining very high at 13.3% it’s still hard to see a significant acceleration in wages growth. To get wages growth up to a more reasonable 4% probably requires labour market underutilisation to fall to around 10% at least.
In other data released today, consumer confidence for November rose 2.8%, with news of lower unemployment and falling petrol prices possibly offsetting news of falling home prices. It’s still stuck in the same range it’s been in all year though. Against this the NAB business survey showed a slight fall in business confidence in October, with both consumer and business confidence running around similar levels which are around or a bit above long term averages.
Implications
While its good to see wages growth up from its lows two years ago, beyond an acceleration in the minimum wage, which affects about 20% of the workforce, we are yet to see a meaningful pick up in underlying wages growth. This is a drag for consumer spending and will help keep inflation stuck around the low end of the 2-3% inflation target.
As result we remain of the view that the RBA won’t start raising interest rates until 2020 at the earliest and given the housing related downturn there is a significant chance that the next move could turn out to be a rate cut – although this would be unlikely before second half next year as it will take a while to change the RBA’s relatively upbeat thinking on the economy and rates.
With the Fed hiking and the RBA on hold (or maybe even cutting at some point) the Australian dollar still has more downside.