- Australian wage growth decelerated unexpectedly in the December quarter, leaving the increase over the year steady at 2.3%.
- Private sector wages was a bright spot with the quarterly and year-ended increase in wages the fastest since 2014.
- Victoria and New South Wales — where unemployment rates are already very low — were among the states to record the fastest increase in wages over the year.
- Economists have expressed doubts as to whether wage growth accelerate by any meaningful degree this year, even with unemployment sitting at the lowest level since 2011.
Australian wage growth decelerated unexpectedly in the December quarter last year.
According to the Australian Bureau of Statistics (ABS), hourly wage growth excluding bonuses grew by 0.54% in the three months to December, coming in below the 0.6% pace expected.
That was the slowest quarterly increase since the September quarter of 2017, and well below the 0.62% pace reported previously.
The increase left wage growth over the year at 2.27%, marginally below the 2.29% level seen in the year to September. The annual rate was in line with market expectations, but below the 2.4% pace forecast by the RBA.
With inflation growing by 1.8% over the same period, real hourly wages grew by a reasonable 0.5%.
Including bonuses, wages grew by 2.8% from a year earlier without seasonal adjustments, unchanged from the pace recorded in the previous quarter. The faster increase in wages including bonuses suggests some firms are looking to retain workers by offering one-off monetary incentives, rather than faster wage increases.
The ABS said private sector wages grew by 0.62%, the fastest pace since early 2014. Public sector wages grew by a slightly slower 0.6% over the quarter, down from 0.68% in the three months to September. It was the slowest quarterly increase since Q3 2017.
Over the year, private sector wages rose by 2.29%, the fastest increase in four years. However, that was still below the 2.53% lift seen in public sector wages over the same period.
Helping to explain why both the quarterly and year-ended figures for public and private sector wages were above the national reading, the ABS noted that: “the published index numbers have been rounded to one decimal place, and the percentage changes are calculated from the rounded index numbers. In some cases, this can result in the percentage change for the total level of a group of indexes being outside the range of the percentage changes for the component level indexes”.
Without adjustments for seasonal patterns, the ABS said that growth ranged from 1.6% for information media and telecommunication services workers to 2.8% for those employed in electricity, gas, water and waste services and health care and social assistance industries.
The chart below from the ABS shows the quarterly and year-ended change in industry wages in original terms. The x-axis yet again provides an unwelcome reminder of just how fast wage increases used to be in Australia.
By state and territory, Western Australia once again recorded the lowest increase over the year, lifting by 1.6%. In contrast, workers in Victoria saw an average increase of 2.7%, the fastest pace across the country.
Wage growth in New South Wales also grew by 2.4% over the year. Like Victoria, wage growth in Australia’s most populous state appears to be accelerating slowly.
That’s important as they currently have the lowest state unemployment rates in Australia. Many believe full employment in these locations has already been hit or breached, an outcome that usually leads to an acceleration in wage pressures as worker shortages begin to mount.
The recent trends suggest that’s now beginning to take place. Slowly.
By sector, annual wage growth ranged from 1.6% in the Northern Territory to as high as 2.9% in Tasmania. For the public sector, workers in the Northern Territory recorded the largest increase at 3.4%, more than double the 1.4% pace seen in the Western Australia.
While full employment may have been reached in New South Wales and Victoria, at 5%, Ben Udy at Capital Economics says today’s data suggests full employment still has yet to be reached nationally.
“We suspect that the natural rate of unemployment has declined in recent years and actually sits closer to 4.0%,” he says. “That would mean that the current unemployment rate of 5.0% is still well above the natural rate.”
Given a plethora of downside risks facing the Australian economy this year, Udy is doubtful whether there’ll be any acceleration in wage growth this year.
“Our view is that the housing downturn and weakness in the wider economy will mean that the unemployment rate may rise this year. If we’re right, it’s hard to see wage growth picking up pace anytime soon,” he says.
Others such as Jeremy Thorpe, Chief Economist at PwC, share a similar view.
“Even with unemployment at 5% in December, the lowest level since June 2011, we are still above the level required to meaningfully lift wage pressures,” he says.
“This is not helped by persistently elevated underemployment levels — where people have jobs but have an interest in working more hours.”
Thorpe says today’s report is unlikely to see financial markets abandon the view that the RBA will need to cut Australia’s cash rate by the middle of next year.
“With financial markets having fully priced in the RBA cutting Australia’s cash rate by the middle of next year, today’s result is unlikely to shift these expectations,” he says.
“Ongoing below-trend wages growth is the linchpin that continues to suppress consumer spending and inflation, driving reduced savings growth and reinforces the concern about cost-of-living for many Australians.”
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