Business investment continues to slide, the outlook for 2017-18 is weak, wages growth continues to stall or fall to new record lows, housing is OK, but cooling, retail sales growth is patchy and now hundreds of thousands of Australians who work on Sundays will have their take-home pay slashed after a landmark ruling by Fair Work Australia.
The Commission said that Sunday penalty rates paid in retail, fast food, hospitality and pharmacy industries will be reduced from the existing levels, which, in some cases, are as much as "double time".
It will be interesting to see what the Reserve Bank Governor, Phil Lowe thinks of the decision when he faces the House of Representatives Economics Committee for the first time in 2017 this morning.
Dr Lowe is on the record as saying that some pick-up “would be welcome” when he was speaking ahead of Wednesday’s Wage Price Index release and Thursday’s penalty rates decision.
Full-time and part-time workers in retail will have their Sunday penalty rates dropped from 200 per cent to 150 per cent of their standard hourly rate, while casuals will go from 200% to 175%.
Hospitality employees will face a reduction in Sunday pay from 175% to 150% while casual hospitality workers’ pay will remain unchanged.
Fast-food employees’ Sunday rates will go from 150% to 125% for full-time and part-time staff, and casuals will go from 200% to 175%. But the growth sector of cafes etc won’t see any benefit, but the likes of McDonald, possibly the chains owned by RFG (Retail Food Group), Collins (Kentucky Fried), and Domino’s will get some benefit.
The hospitality sector, despite evidently being hampered by having to pay its workers too much, has grown its employment by 11.4% since 2011, far outstripping the overall workforce, which grew by just 6.8%.
Angela Scott, from the Sydney University’s Business School made a good point on the penalty rates decision.
“The Fair Work Commission’s decision does not address a far bigger issue – the climbing cost of rent and energy that is likely to have a big impact on businesses and their employees.
“As rent prices in most Australian capital cities continue to soar and energy costs climb, employers are likely to adjust wages to keep their businesses afloat. At the end of the day, it’s workers who ultimately bear the brunt of this issue,” she said yesterday.
The decision comes less than 24 hours after the Australian Bureau of Statistics revealed that the long run of weak wages growth for Australian workers continued in the December quarter and 2016 with a rise of 1.9% (annual). Private sector wages though grew by just 1.8%, the lowest on record.
It means that workers are getting a small real wages rise, on average — but only because inflation is so low: 1.5% annually in the December quarter, and 1.3% before that. Seven years ago when inflation and wage rises were well above 2% (annual), real wages fell for around 9 months because inflation was running ahead of wage rises.
But the impact of this decision won’t be seen for about a year. The changes start in July and it will take up to six months for the pay cuts to start emerging in the ABS statistics. So in a year’s time we could see a further slide in wage growth, or no change because of these cuts.
At some stage the Reserve Bank will be forced to intervene and start cutting interest rates back towards the ultra low 1% level to soften the impact of the weak wages on the economy.
The Federal Government’s Mid Year Economic and Fiscal Outlook cut its wages growth forecast by half a percentage point to 2.25%, but to achieve that that will need a substantial rise in the March and June quarter. It will not happen and these cuts in penalty rates will start adding downward pressure.
The Government’s 2017-18 forecast of 2.5% wages growth (itself revised down) is also looking out of reach. All this means more pressure on income tax receipts, more pressure on the budget deficit and especially on household consumption 9especially retail sales).
And we should remember that hospitality and retail staff are our lowest income earners, and spend a whole lot more of their income than middle and high-income earners who save more.
So that cut in penalty rates will flow straight through into spending by low income earners. Retailers will find sales growth weakens over time and might come to rue the day they pressed so hard for cuts to penalty rates.
For the Reserve Bank this decision is bad news – it has been looking for signs of wages growth and an uptick in inflation (to carry it up into its target band of 2-3%) but there’s nothing on the horizon to see that occur.
Jobs growth is weak, wages growth weak, nominal GDP growth will not rise (even after the huge boost from our terms of trade and the current resources boom).
The mining investment boom fall-away is still working through, so actual investment is down this year compared to last and forecast investment is also down compared to last year’s forecasts. Manufacturing investment is continuing to perform, but not as strongly as last year; only "other industries" is showing growth.
The first estimate for 2017-18 investment shows a 3.9% fall on the first estimate for 2016-17.
Plans for mining investment are down 20%, plans for manufacturing investment down 1.2%, but planned investment for “other selected industries” up 8.3%.
Business investment fell by 2.1% in the December quarter, which missed market forecasts of a fall of just half a per cent. Investment in capital goods, including buildings, structures, machinery and equipment totalled $27.57 billion in the quarter, according to the Australian Bureau of Statistics.
Businesses expect to invest $112.15 billion on capital goods by the end of the June 30 this year, down 9% than the same estimate made for the previous year.
The ABS said the first estimate of capital expenditure for 2017-18 is $80.62 billion, nearly 4% lower than the first estimate for 2016-17. Gloomy.
