There was a lot riding on the September quarter Wage Price Index (WPI) from the Australian Bureau of Statistics at 11.30 am yesterday, – in terms of the future health of the economy, the budget and the direction of interest rates, the WPI was a far more significant set of data.
The expectation was that the National Wage Case rise in May would filter through to lowly paid workers and produce a quarter on quarter rise of 0.2%, perhaps 0.3%, and an annual rate up around 2.2% to 2.3%.
That was the forecats most economists and analysts had prepared. It however wasn’t the outcome and the result was another weak and disappointing outcome where it was hard to see any positive impact at all from the national wage rise.
But unlike the overwhelming ‘yes’ vote, the WPI for the three months to September 30 fell short of expectations – yes it was up 0.5% quarter on quarter to an annual rate of 2.0%, seasonally adjusted from a previously reported 1.9% in the June quarter.
But that June figure was revised up to an annual 2%, with the March quarter reading now 0.6% from the first reported 0.6%.
So there was no rise at all and it is clear that without the rise in the national wage, the WPI would have been slower than the originally reported 1.9%. Public sector wages rose an unchanged annual 2.4% in the September quarter, but private wages rose 1.9%, up from the 1.8% reported originally.
The Aussie dollar slid a third of a US cent to a four-month low at 75.96 US cents (and then dipped to 75.90) and bond yields fell as investors pushed out the probability of an interest rate hike to 2019. The 10 year yield dipped to 2.59%, down 7 points.
“The result is actually very disappointing and suggests that underlying wage pressures probably eased further,” Capital Economics economist Paul Dales said yesterday in a commentary.
"Wage growth did rise in most of those sectors that have a higher share of employees on the minimum wage, such accommodation (2.2 per cent versus 2.1 per cent) and admin and support (1.7 per cent versus 1.3 per cent). But the fall in retail (1.6 per cent versus 1.8 per cent) highlights the wider weakness of that sector. Private sector wage growth nudged up from 1.8 per cent to 1.9 per cent, while it held steady at 2.4 per cent for the public sector.”
And ANZ senior economist Felicity Emmett said the lack of impact from the bigger than usual minimum wage rise suggested underlying wages growth actually slowed in the quarter. “A further reduction in the unemployment rate is clearly required before we see a more sustained rise in wage growth,” she said yesterday.
The news will add to concerns at the Reserve Bank that wages growth refuses to accelerate and that, if it continues, could see consumers start to cut their already weak levels of spending (as with the lack of any growth in retail sales in the September quarter). The RBA made it clear in the November Statement on Monetary Policy last Friday that it is worried about the impact of slow wages growth and consumer expectations.
“If, however, households start viewing lower income growth as being more persistent, consumption growth could be somewhat lower than forecast. Weaker-than-expected growth in housing prices or changes in expectations about the likely path of interest rates could also lead to weaker consumption growth than is currently forecast,” the RBA said.
ABS Chief Economist Bruce Hockman said in this morning’s statement that “Annual wages growth increased marginally to 2.0 per cent in the September quarter 2017. The higher wage growth in the September quarter was driven by enterprise agreement increases, end of financial year wage reviews and the Fair Work Commission’s annual minimum wage review."
The ABS said that in original terms, through the year wage growth to the September quarter 2017 ranged from 1.2% for the Mining industry to 2.7% for Health care and social assistance and Arts and recreation services. Western Australia recorded the lowest through the year wage growth of 1.3% and Victoria, Queensland and Tasmania the highest of 2.2%.
And have a thought about the National Australia Bank – it issued its latest economic forecasts for Australia over the next year – but before the WPI was announced. The nAB had been forecasting two rate increases in the second half of next year. I wonder what they are now thinking?
