Australian wage growth has come in well below expectations, again.
According to the Australian Bureau of Statistics (ABS), hourly wage growth excluding bonuses grew by 0.48% in the September quarter, missing forecasts for a larger increase of 0.7%.
Annual wage growth also came up short, rising by 2.01%, below the 2.2% level expected. It was marginally above the 1.94% level reported in the June quarter.
“Annual wages growth increased marginally to 2.0% in the September quarter 2017,” said Bruce Hockman, Chief Economist at the ABS.
“The higher wage growth in the September quarter was driven by enterprise agreement increases, end of financial year wage reviews and the Fair Work Commission’s annual minimum wage review.”
A 3.3% increase in Australia’s minimum wage rate rate at the start of July was expected to boost quarterly wage growth by 0.2 percentage points.
With wages growing by 0.5% over the quarter, that temporary boost likely masked what would have likely been a record-low level for wage growth.
For a central bank expecting a gradual lift in wage pressures to help boost household consumption, GDP growth and inflation in the years ahead, this is a concerning result for the Reserve Bank of Australia (RBA), especially given how strong employment growth has been this year.
Even with tightening labour market conditions, wage growth is failing to respond.
After seasonal adjustments, private sector wages grew by just 1.86% over the year, outpaced by a 2.37% increase for public sector workers.
With consumer price inflation (CPI) increasing by 1.8% over the same period, real wages for both private and public sector workers grew marginally over the year.
Over the quarter, wages for private sector workers grew by 0.48%. Those for private sector workers increased by a larger 0.54%.
This chart from the ABS shows how wage growth fared by individual sector, both over the September quarter and from a year earlier. Unlike the headline rates, these are shown in unadjusted terms.
If you’re wondering why the scale seems strange, that’s because those were the levels where wage growth used to sit in the past.
An unwelcome reminder if there ever was one on how things used to be.
The ABS said that annual wage growth ranged from 1.2% for mining industry workers to 2.7% for those employees in the health care, social assistance and arts and recreation services.
By state and territory, Western Australia recorded the lowest annual growth rate at 1.3%, a result that fits with ongoing weakness in mining sector wages. Wage growth in the Northern Territory also undershot the national average, rising by 1.4% over the year.
At the other end of the spectrum, workers in Victoria, Queensland and Tasmania saw wages lift by 2.2%, the fastest pace across the country.
Wage growth in New South Wales and the ACT grew by 2.1% and 1.9% respectively over the year.
Callam Pickering, APAC economist at Indeed, said today’s report made it hard to justify the need for higher interest rates in Australia.
“In the current environment, low wage growth points to weak inflation and makes it difficult for the Reserve Bank to justify higher interest rates,” he says.
And he doesn’t expect there’ll be any meaningful improvement in wage growth for some time yet.
“Stronger business conditions and lower unemployment should, in time, lead to higher wage growth. But there remains a high degree of slack in the labour market and that keep wage growth relatively low for the foreseeable future,” he says.
Paul Dales, Chief Australia and New Zealand Economist at Capital Economics, agrees that workers shouldn’t bank on a sharp lift in wage growth anytime soon.
“At some point in the next year or two, the recent strengthening in the labour market should boost wage growth for all employees,” he says.
“But the spare capacity in the labour market will be used up only gradually and the bigger, longer-term issues of globalisation and technological innovation will probably prevent wage growth from rising to 2.5% until the end of 2019 or perhaps even later.
“This underlines our view that underlying inflation will stay below 2.0% for perhaps another three years yet and that household consumption may soon slow.”
Financial markets have reacted strongly following the release of the report with the Australian dollar tumbling below 76 US cents for the first time in over four months.
Bond and cash rate futures are also firmer, indicating a smaller likelihood that interest rates will lift in the short-to-medium term.