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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Thursday, 14 May 2015

Wages grow by 2.3 per cent

Wages growth softens further

The ABS released it Wage Price Index figures for Q1 2015 yesterday, and as expected nationally wages growth was soft.

The trend index and the seasonally adjusted index for Australia rose 0.5 per cent in the March quarter 2015.

The private sector rose 0.4 per cent seasonally adjusted, and the public sector rose 0.5 per cent.

Over the past year public sector wages growth held up at 2.5 per cent on a trend basis, but private sector growth was particularly soft at 2.3 per cent on a trend basis, and just 2.2 on a seasonally adjusted basis.

Through the year all sectors rose 2.3 per cent.

Construction wages fade

As well as there being slack in the labour force, nationally wages are also being pulled back by the end of the mining investment boom.

Wages growth in the mining and construction sectors were soft and very soft respectively, with some 60,000 mining construction jobs set to be cut between 2014 and 2018.

Indeed over the past year the weakest wages growth was seen in administrative services (+1.7 per cent) and construction (+1.8 per cent) as once-lucrative mining contracts are lost.

This likely points towards a torrid time ahead for some resources regions.

More robust wages growth was seen in sectors such as education (+1.0 per cent for the private sector in the March quarter, and +1.1 per cent in the public sector, partly due to the timing of changes in enterprise agreements), and healthcare.

All sectors wages growth of 2.3 per cent is as low as we have seen on this survey and only in line with the rate of underlying inflation.

However, wages growth is still a solid 0.9 percentage points ahead of the headline rate of inflation of just 1.3 per cent, with low CPI in part being driven by cheaper fuel prices.

With mortgage repayments also falling, mortgage arrears are generally at a very low level.

State versus state

Although some people like to pretend that the soft result means that wages are "falling", of course in nominal terms wages are still rising.

In fact, wages have risen inexorably in every state and territory throughout the course of the data series.

Looked at on a rolling annual basis, however, we can see that wages growth has slowed sharply since the peak of the mining boom, particularly in the states which benefited so handsomely from the mining construction phase.

Rises through the year ranged from just 1.8 per cent for the Australian Capital Territory, to 2.6 per cent for Victoria.

Plotted over one, five and ten year periods we can see just how strong wages growth in Western Australia, Queensland and the Northern Territory has been over the past decade.

The wrap

Reserve Bank forecasts have expected wages growth to slow - and slow it has. 

In nominal terms wages continue to rise, but there is still plenty of slack in the labour force and it could be some time before we see stronger wages growth again.