Pete Wargent blogspot


'Must-read, must-follow, one of the best analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Markets & Economics Editor, Sydney Morning Herald.

'I've been investing 40 years & still learn new concepts from Pete; one of the best commentators...and not just a theorist!' - Michael Yardney, Amazon #1 bestseller.

Thursday, 13 August 2015

Wages grow at +2.3 per cent

Wage growth 2.3 per cent 

The ABS released its Wage Price Index for the June 2015 quarter which came in smack on market expectations at +0.6 per cent.

This takes wages growth to its lowest level on record for this data survey at a seasonally adjusted +2.3 per cent, although with inflation tracking at just +1.5 per cent this represents real wages growth of +0.8 per cent for the year to June 2015.

The long run seasonally adjusted data is charted below.

The slowing in wages growth has previously been particularly pronounced in the resources states, but the "Original" data below shows that the pace of wages growth is in fact presently softer then it has been in all states and territories.

Given that the main drag on the economy has been the death of the mining construction boom, there are no prizes for guessing that wages growth has been pulled back by, erm, the mining and construction sectors.

Mining wages growth has dived from +4.4 per cent in the 2012/13 financial year to +2.8 per cent in FY2013/14 and then just +2.3 per cent in FY2014/15.

Since the June 2014 quarter mining wages have increased by just +2.0 per cent.

Construction wages growth has followed a very similar pattern falling from +3.3 per cent, to +3.0 per cent, to +2.2 per cent over the same time period.

Given some of the carnage we have been seeing in some mining regions and the accelerating pace of decline in mining construction this can come as little surprise.

Some services sectors and even manufacturing industries recorded decent wages growth - electrical, gas water & waste services wages grew by +3.4 per cent, notably finance and insurance services by +2.9 per cent, arts and recreation services by +2.7 per cent, and manufacturing by +2.7 per cent.

With a shortfall of tradies now readily apparent in the capital cities there is sure to be wages inflation in plumbing, electrical contracting, bricklaying, and other similar trades. 

There were a few brighter sparks of data in this release - private sector wages including bonuses rose by +0.8 per cent in the June quarter, the best Q2 result in 6 years (although this was following on from a negative result in Q1). 

Overall, though, this was another soft wages result, consistent with indicators of plenty of spare capacity in the labour force at this time. 

The latest Reserve Bank forecasts imply that this dynamic is expected to continue for quite some time yet, despite the headline rate of unemployment now being expected to be in decline by calendar year 2017. 

Finally, it's worth noting that while commentators like to talk about "falling" wages, what they are really referring to is wages growing less quickly than before.

As the long run data shows, wages have not declined in any state or territory at any time through the history of the survey, but the shape of the respective curves do show that the pace of growth is now demonstrably slower than it was through the mining boom.

The resources states have therefore also recorded the strongest wages growth over the past decade, but as noted above mining and resources regions are now likely to experience declining employment, demand and wages growth. In many cases the declines will be severe.

In property news, dwelling prices have unsurprisingly continued to crash dramatically in the Pilbara as well as other resources regions and towns.

The Australian Financial Review also reported this week that over the past three years property prices in another property "hotspot" Roxby Downs have crashed by as much as 50 per cent with vacancy rates now skyrocketing. 

With the copper price testing 6 year lows at just US$2.34/lb, there is likely much worse to come there yet. 

This is a timely reminder of why investing in the areas of highest demand - close to the centre of capital cities - has always been the best risk-adjusted bet.

The Reserve Bank's Philip Lowe highlighted in a speech last night how it is not a shortage of actual dwellings which puts pressure on capital city property prices over time - rather it is the dearth of prime location land available for development that sees well located land prices continuing to rise over time.