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

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Wednesday, 16 November 2016

Wages grow by +1.9pc


One of the dubious advantages of being British is that I know what it feels like to live through recessions, and painfully drawn out periods where real wages are falling. 

In short, not that amazeballs! At least, not as an employee. 

That said, you do learn that in an open economic model there are mechanisms which can eventually help to stabilise things again, so there is some comfort to be found in that, even if it takes a while.

Moreover, it's often the case that what appears to be on the face of it to be adverse news can serve a beneficial purpose too (and vice-versa).

Wages growth at record low

Fortunately in Australia we haven't seen a technical recession in more than 25 years.

The labour market at the moment is characterised by part time jobs growth and underemployment, though wages are still growing in real terms, at +0.3 per cent ahead of the rate of core inflation.

In nominal terms, however, annual Wage Price Index growth of +1.9 per cent is the lowest on record since this data series began in 1997. 

Both quarterly and annual wages growth missed expectations on the downside in Q3.

Slower wages growth may not be great for consumers directly, but it has helped to push the unemployment rate down, is a bonus for employers in reducing their costs, and with domestic inflation so weak this has allowed interest rates to fall to record lows.

So, it's hardly all 'bad' news, even if it's inevitably reported as a wicked result, which it probably will be (though admittedly I haven't looked).  

Where wages are slowing

While public sector wages were up by +2.27 per cent over the year to September, wages growth in the private sector was exceptionally weak over the year at +1.89 per cent. 

Neither sector has witnessed a slower rate of growth in the past 18 years. 

At the state level, annual wages growth was below 2 per cent in three states plus the Australian Capital Territory. 

The strongest performance - if you can call it that - was seen in the southern states of Tasmania (+2.3 per cent) and South Australia (+2.2 per cent), and also in New South Wales (+2.1 per cent). 

Wage price growth has apparently been seeking out a nadir for quite a while now, but it still hasn't found it. 

Looking at the wage indices by state over the life of the data series shows how the rate of wages growth has steadily slowed in nominal terms since the global financial crisis and the end of the investment phase of the resources boom.

Not too surprisingly, annual wage price growth in the mining industry was very weak at just +1 per cent, and a miserly +0.1 per cent for the September 2016 quarter. 

The strongest wages growth was seen in healthcare and social assistance at +2.4 per cent - and a few other industries saw wages growth of +2.3 per cent - but generally speaking growth was soft almost across the board. 


Overall, weak wages growth is reflective of part time jobs growth and underemployment, and helps to explain why domestic inflationary pressures have been so persistently soft.

Since the US election there has been a good deal of jockeying for new positions when it comes to the outlook for interest rates.

We'll have to wait and see about that, but the lowest ever quarterly and annual wages growth is not exactly screaming interest rate hikes any time soon.

The Labour Force figures for October 2016 will be released tomorrow, and will present another interesting hurdle.