Australia’s wages grew at the slowest pace on record in the three months to September.
According to the ABS, wages, excluding bonuses, grew by 0.4% in seasonally adjusted terms, below the 0.5% increase expected.
It was the lowest quarterly gain since the ABS survey first began in 1997. That means that wage growth is now likely running at the slowest pace since the early 1990s recession.
Private sector wages grew by just 0.405% over the quarter, again the lowest level on record.
Not great news given it’s the largest employer in the country.
In comparison, public sector wages increased at a relatively brisk pace of 0.56%.
Wages for accommodation and food services workers recorded the largest gain of all industries during the quarter at 1.7%. At the other end of the spectrum, mining industry wages grew by just 0.1%, the lowest of all industries surveyed.
The transition from the mining boom to the tourism boom transforming before our eyes, albeit on vastly different pay scales.
The quarterly miss saw annual wage growth slow to just 1.88%, also a record low.
From the September quarter last year, private sector wages rose by 1.89% while those in the public sector increased by 2.27%.
Both were record lows.
According to the ABS, annual wage growth is now below 2.5% for all industries.
“In the September quarter 2016 wage growth ranged from 1.0 per cent for mining to 2.4 per cent for health care and social assistance,” it said.
This table shows both the quarterly and annual change in wages by individual sectors in original terms. It comes courtesy of the ABS:
The sharp deceleration in wages growth will come as a disappointment to policymakers, placing further pressure on household budgets at a time when they’re expected to lift spending to help with Australia’s economic transition.
Earlier this month, the RBA said that there was already “significant uncertainty about the outlook for consumption growth given uncertainty about households’ expectations of their income growth and the influence of these expectations on their spending and saving decisions”.
It also said that household consumption was “expected to continue making a large contribution to growth in overall expenditure over the forecast period and to grow faster than household disposable income”.
The news today on that front is unwelcome, suggesting that weakness in wage growth — the vast majority of household income — may have been responsible for a series of weak retail sales reports this year, along with tepid growth in household consumption in Australia’s June quarter GDP report.
Along with creating downside risks to household expenditure, the sharp deceleration in wage growth suggests that labour market slack within the Australian economy may be greater than what many expect.
Underemployment — people who want to and are available to work more hours — currently sits at record highs while underutilisation — underemployed and unemployed persons combined — is well above the levels seen during the global financial crisis.
There’s an abundance of available labour and not enough work to go round.
This, along with past weakness in national income growth and global inflationary pressures, is weighing on wage growth.
That in turn is creating downside risks for household consumption growth — the largest component within the Australian economy — along with domestic inflationary pressures.
While not enough in isolation to bring on a further rate cut from the RBA, the weakness in the last quarter will raise questions as to whether the RBA’s easing cycle is truly over.
Upcoming jobs data from the ABS — including Thursday’s labour force report for September — will be crucial in determining whether or not it is.