Australian wages growth continues to slow to record lows as unemployment runs at the moderate rate of 5.6%.
The September quarter Wage price Index from the Australian Bureau of Statistics yesterday revealed annual wages growth slowed to a new all time low of just 1.9%. The index rose 0.4% in the three months, the smallest quarterly rise on record since the series started in 1997.
Through the year, private sector wages continued to grow at a slower pace than the public sector, 1.9% compared to 2.3%, the Australian Bureau of Statistics reported.
Seeing the Consumer Price Index rose an annual 1.3% in the year to June, wages growth is still real, but inflation is starting to rise and could easily overtake wages growth in the next year to again push employee incomes lower in real terms (as it was just over a year ago).
These wages figures do help explain why the 2015-16 reporting season was better than expected for some companies.
But they are bad news for retailers and others depending on consumer demand. Retail sales growth continues to slow, hitting an annual rate of 2.8% in September, down from the solid 4.0% rate in January.
Wages are still growing in real terms, but not by enough to significantly benefit retailers this Christmas, unless consumers dip into their savings. But in a positive, the terms of trade will be positive for a third quarter, so income growth will be positive.
The disappointing wage price data is in contrasts poorly with the solid recovery in wages growth in the US, where the median worker saw their pay rise by 3.9% over the year to October, the fastest rate of growth since November 2008.
And by another measure in the monthly jobs report, hourly wages rose 2.8% in the year to October, continuing the slow recovery in wages that started earlier this year.
But no such situation here and the annual growth rate has slowed from the most recent high of 4% a year recorded in the March quarter of 2011.
Compounding the problem has been some significant revisions of data from the past year.
Yesterday’s report reveals changes to the December and June quarter data. Annual growth in the December, 215 quarter was originally put at 2.2%, now it is 2.0% and for the June quarter, it was originally 2.0%, now revised down to 1.9%, the same as in the September quarter.
If those changes had not occurred, the annual rise would have been 2.3%, the highest for two years.
Not a single industry from manufacturing to healthcare raised wages more than 2.5% annually. Mining was one of the most sluggish with workers getting an annual rise of only 1.0% (and just 0.1% for the quarter).
But the data tells us that the slack still in the economy and acknowledged by the RBA, is still with us, as we will see with the October jobs data out later today.
In its most recent Statement On Monetary Policy, the RBA singled out low wages growth as something to watch:
“(G)rowth in the WPI is expected to remain low as it is anticipated that there will continue to be spare capacity in the labour market over the next few years. Indeed, liaison suggests that there is not strong ‘pent-up’ demand for larger wage increases, following below-average increases in recent years.
In his first speech to the annual CEDA dinner in Melbourne (The Committee for the Economic Development of Australia) on Tuesday night, RBA Governor, Phil Lowe said:
"At the moment, though, our economy is adjusting better than many predicted to the unwinding of the mining investment boom. Over the next year, we are expecting the economy to grow at around its potential rate, before picking up a bit in the following year. We also expect some further modest progress in lowering unemployment, although spare capacity remains.
"The low interest rates are helping to support the economy. And the decline in the exchange rate over recent years has assisted a number of industries. Survey measures of business conditions and consumer confidence generally remain above average. The prices for our commodity exports have also lifted since the start of 2016. As a result, for the first time in some years, Australia’s terms of trade have moved higher. This will help to boost incomes and fiscal revenues.
"Inflation remains low, but the latest reading did not suggest that it was moving lower still. There remain reasonable prospects that inflation will return to around average levels over the next couple of years,” Dr Lowe said. No mention of the slow pace of growth in wages – the RBA just got a timely reminder yesterday.
