Why most Australians are feeling glum but business confidence is soaring, in one chart

If you were wondering why there’s such a gulf between Australian business and consumer confidence right now, look no further than the chart below.

Source: Commonwealth Bank

From the Commonwealth Bank, it shows the share of non-financial corporate profits and employee wages expressed as a percentage of Australian GDP.

To Michael Workman, senior economist at the Commonwealth Bank, it explains a lot.

“Differing sentiment between business and workers/consumers is probably due to recent starkly contrasting trends in income growth,” he says.

“Strong growth in profits but weak wages growth means that the profits share of GDP has increased sharply over the last year, while the wages share has fallen.”

At 20.4% of GDP, profits have soared over the past year, driven partially by strength in commodity prices. On the other side of the ledger, the wages share of GDP has fallen to 51.5%, equalling the low seem in 2009.

“A combination of weak wages growth and a fall in average hours worked is weighing on the wages measure,” says Workman.

That goes someway to explaining why there’s been such a divergence between business and consumer confidence over the past year: business income is strong while household income growth is weak.