Australian manufacturing workers are seeing their wages increase at the fastest pace in decades

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  • Australia’s manufacturing sector is doing more than alright in 2018.
  • Activity levels improved in all of the past 24 months, leading to employment surging by 86,000 over the past year, the largest increase for any industry over that period.
  • According to the Ai Group’s latest Performance of Manufacturing Index (PMI), wages across the sector grew at the fastest pace on record in September.

For an industry many had already written off, Australia’s manufacturing sector is doing more than alright in 2018.

Activity levels, as measured by the Australian Industry Group’s (Ai Group’s) Performance of Manufacturing Index (PMI), have improved in each of the past 24 months, the longest stretch of consecutive gains dating back to 2005.

And the pace of improvement has been rapid rather than steady, including in September where activity levels rose at the fastest pace in six months.

New orders and exports are booming, helped in part by an improvement in the Australian and global economies, a lower Australian dollar along with a strong pipeline of domestic infrastructure, mining, renewable and defense projects.

Given that backdrop, it’s little wonder why manufacturers increased their staffing levels by a mammoth 86,000 in the year to August, according to data released by the ABS, the largest increase of any Australian industry over that period.

While Australia’s manufacturing sector may be far smaller than what it once was at around 7% of GDP, it’s clearly anything but weak right now.

“The manufacturing sector has confounded doubters in recent years by lifting employment and production despite the exit of passenger car assembly from Australia,” the Ai Group says.

“Australia’s manufacturing sector is diverse and comprised of multiple sub-sectors that are continuing to adapt to their operating environment.”

And now manufacturing workers are starting to reap the rewards of this spectacular and largely unexpected recovery.

Not only is employment across the sector booming, wages are increasing at the fastest pace in the 16-year history of the Ai Group survey.

“The average wages sub-index continued to rise in September, increasing by 4.6 points to a record high of 69.3 points,” the group said.

“This indicates a higher proportion of businesses are facing wage increases across manufacturing.”

Ai Group

A reading of 50 indicates that wage levels were unchanged form a month earlier. Anything above this level signals that wages increased from the prior survey with the distance away from 50 indicating how quickly the change occurred.

At 69.3 points in September, that indicates wages rose rapidly last month, something the Ai Group said might reflect “wage increases linked to this year’s minimum wage increase of 3.5% making their way through Australia’s system of industrial awards and agreements”.

While that may be true, it’s clear that demand for Australian manufactured goods has also been a factor, creating not only demand for workers but also increased skill shortages, leading to a pickup in wage pressures.

That will be music to the ears of policymakers at the Reserve Bank of Australia (RBA) who expect tighter labour market conditions will lead to lower unemployment and a gradual increase in wage pressures in the years ahead.

Given current trends, it looks like process is already well underway in the manufacturing sector.

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