- Wage growth at record low: The wage price index rose by 0.4 per cent in the March quarter after a 0.5 per cent rise in the December quarter. Annual wage growth eased from 2.2 per cent to a record (18-year) low of 2.0 per cent.
- More bonuses: Including bonuses, wages rose by 0.4 per cent in the March quarter. The annual growth of wages including bonuses was 2.5 per cent, up from 2.2 per cent in the December quarter.
- Industries with fastest annual wage growth: Financial & insurance services, Education & training and Health care & social assistance (all up 2.6 per cent).
- Industries with slowest annual wage growth: Rental, hiring and real estate services (up 1.3 per cent); Administrative & support services and Mining (both up 1.4 per cent).
What does it all mean?
For a long time, wage growth near 3 per cent was regarded as “normal”. That is, before the global financial crisis and the new era of disruption. Now inflation is well below 2 per cent, between 1.0-1.5 per cent. And wages are growing at a near 2 per cent annual pace. Welcome to the new “normal”.
But wage growth near 2 per cent is a win-win situation. Lower growth of wages has encouraged employers to take on more staff. And while low nominal growth of wages near 2 per cent is an adjustment for employers, wages are still growing at a faster pace than prices. So real wage gains are still boosting consumer purchasing power.
Employers are keen to reward good staff and that is reflected in stronger wage growth once bonuses are included. Bonuses are dependent on business revenue and profits, but as is clear from the past profit reporting season, Aussie companies are in good shape with 90 per cent of ASX 200 companies recording a profit for the six months to December compared with a year ago.
The wage data keeps a rate cut on the table but Reserve Bank Board members may need more “persuading”.
What do the figures show?
Wage price index
- The wage price index rose by 0.4 per cent in the March quarter after a 0.5 per cent rise in the December quarter. Annual wage growth eased from 2.2 per cent to a record (18-year) low of 2.0 per cent.
- Private sector wages rose by 0.4 per cent in the quarter while public sector wages rose by 0.5 per cent. Annual growth of private sector wages fell from 2.0 per cent in the December quarter to a record low of 1.9 per cent in the March quarter. Public sector wage growth was steady at 2.5 per cent in the March quarter.
- Including bonuses, wages rose by 0.4 per cent in original terms in the March quarter to be up 2.5 per cent on a year ago. Annual wage growth including bonuses was up from 2.2 per cent in the December quarter and the fastest pace in nine months (three quarters).
- Private sector wages including bonuses rose by 0.4 per cent in the quarter to be up 2.6 per cent on a year ago. Public sector wages including bonuses rose by 0.6 per cent in the quarter and by 2.5 per cent over the year.
- Industries with fastest annual wage growth: Financial & insurance services, Education & training; and Health care and social assistance (all up 2.6 per cent).
- Industries with slowest annual wage growth: Rental, hiring and real estate services (up 1.3 per cent); Administrative & support services and Mining (both up 1.4 per cent); Professional, scientific and technical services and Construction (both up 1.6 per cent).
- Annual wage growth across States & Territories: NSW, 2.1 per cent; Victoria, 2.4 per cent; Queensland, 1.9 per cent; South Australia, 2.2 per cent; Western Australia, 2.0 per cent; Tasmania, 2.2 per cent; Northern Territory, 2.1 per cent; and ACT, 1.8 per cent.
What is the importance of the economic data?
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?
Wages continue to outpace prices. Add in the strong flow of dividends from companies, lower interest rates and higher home prices and there is plenty of latent spending power to boost sales at retailers. If you are getting paid a bonus as well, there is even more reason to spend.
The modest growth of wage costs should continue to help businesses as they deal with the challenges of global technology-led disruption.
Rate cuts remain possible in coming months. Australia still has close to the highest cash rate in the developed world. But Reserve Bank Board members are not convinced that rate cuts still work to boost growth at low levels.
From the Reserve Bank’s perspective the wage data doesn’t add much more extra information.