Wage growth lifts from lows; Watchful consumers

Wage Price Index; Consumer confidence

• Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment fell by 1.7 per cent in November after lifting 3.6 per cent in October and rising 2.5 per cent in September. The index now stands at 99.7 (long-term average 101.7). A reading above 100 denotes optimism.
• Wage growth: The wage price index rose by 0.5 per cent in the September quarter to be up 2.0 per cent over the year. Annual inflation remains below wages at 1.8 per cent. The broad household consumption deflator is also lower, up 1.4 per cent over the year to June.
• Bonuses up: Wages that include bonuses rose by 0.7 per cent in the September quarter to be up 2.2 per cent over the year.
• Industries with fastest annual wage growth: Health care & social assistance and Arts & recreation services (both up 2.7 per cent); Education & training (up 2.4 per cent).
•  Industries with slowest annual wage growth: Mining (up 1.2 per cent); Professional, scientific and technical services (up 1.5 per cent).

What does it all mean?

• Wages are still outpacing prices. Ordinarily this would be a positive result. But wage earners are still adjusting to the ‘new black’ of wage growth near 2 per cent rather than 3.5-4.0 per cent. Wages are growing at a slower pace because globally-challenged businesses are reluctant to lift prices on the fear of losing sales
• Not only are wages growing at a slower pace than in the past, but the average Aussie is spooked by higher electricity and gas bills and council rates. So consumer confidence is just average.
• Still, you need to watch what people do, rather than watch what they say. Household spending is growing at a ‘normal’ 2.6 per cent annual pace basically because a raft of items like food, clothing, cars and household appliances like TVs are the most affordable they have ever been.
• No surprises from the monthly consumer confidence survey. Overall confidence levels can be described as just OK – people aren’t gloomy, but neither are they exuberant. The good news is that Aussies are positive about the state of their personal finances, with optimism the best in seven months. The Reserve Bank believes the questions relating to personal finances are the most important in the confidence surveys.

What do the figures show?

Wage price index

• The wage price index rose by 0.5 per cent in the September quarter after a 0.5 per cent rise in the June quarter. Annual wage growth lifted from 1.9 per cent to 2.0 per cent.
• Private sector wages rose by 0.5 per cent in the September quarter while public sector wages also rose by 0.5 per cent. Annual growth of private sector wages rose from 1.8 per cent to 1.9 per cent. Annual growth of public sector wages held at 2.4 per cent.
• Including bonuses (ordinary time hourly rates), wages rose by 0.7 per cent in the June quarter to be up 2.2 per cent on a year ago.
• Private sector wages including bonuses rose by 0.6 per cent in the quarter to be up 2.0 per cent on a year ago. Public sector wages including bonuses rose by 0.8 per cent in the quarter and by 2.2 per cent over the year.
• Industries with fastest annual wage growth: Health care & social assistance and Arts & recreation services (both up 2.7 per cent); Education & training (up 2.4 per cent). Accommodation and food services; ‘Other services’; Manufacturing; and Financial and insurance services (all up 2.2 per cent).
• Industries with slowest annual wage growth: Mining (up 1.2 per cent); Professional, scientific and technical services (up 1.5 per cent); and Rental, hiring & real estate services and Retail trade (both up 1.6 per cent).
• Annual wage growth across States & Territories: NSW, 2.1 per cent; Victoria, 2.2 per cent; Queensland, 2.2 per cent; South Australia, 2.0 per cent; Western Australia, 1.3 per cent; Tasmania, 2.2 per cent; Northern Territory, 1.4 per cent; and ACT, 1.9 per cent.

Consumer confidence

• The Westpac/Melbourne Institute survey of consumer sentiment fell by 1.7 per cent in November after lifting 3.6 per cent in October and rising 2.5 per cent in September. The index now stands at 99.7 (long-term average 101.7). A reading above 100 denotes optimism.
• The current conditions index fell by1.5 per cent while the expectations index fell by 1.8 per cent.
• Two of the components of the index rose in November:
  • The estimate of family finances compared with a year ago was up by 1.3 per cent;
  • The estimate of family finances over the next year was up by 2.9 per cent;
  • Economic conditions over the next 12 months was down by 6.2 per cent;
  • Economic conditions over the next 5 years was down by 2.1 per cent;
  • The measure on whether it was a good time to buy a major household item was down by 3.3 per cent.
• Housing outlook: A good time to buy a dwelling? The index was up by 3.4 per cent in November and has lifted almost 9 per cent in the past six months.

What is the importance of the economic data?

• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
• The Wage Price Index has been compiled since September quarter 1997 and measures quarterly changes in wage and salary costs for employees. The index is based on a representative sample of employees, and includes measures of non-wage costs including superannuation, payroll tax, public holiday and workers compensation. The Wage Price Index is useful in measuring wage pressures in the economy. While strong growth in wages would boost domestic spending, it could also serve to lift employer costs and prices and add to economy-wide inflationary pressures. The wage price index is a measure of hourly pay rates (excluding bonuses).

What are the implications for interest rates and investors?

• The job market is strengthening across Australia, even in mining towns. So wages are more likely to rise over the next year. A forward-looking Reserve Bank would have a similar expectation.
• Official interest rates are unlikely to change for the next year.