Job market slack keeps lid on wages

A study of economic trends says wages should grow faster than 4 per cent a year.

A study of economic trends says wages should grow faster than 4 per cent a year. Photo: AAP

Year-on-year wages growth has remained flat at 2.3 per cent for another quarter, firming up the Reserve Bank’s view that job market slack continues to limit upward pressure on people’s pay packets.

Wages growth for the year to June 30 remained stagnant despite total hourly rates of pay, excluding bonuses, beating expectations with a 0.6 per cent rise during the quarter.

The quarterly increase was fuelled by a 0.8 per cent rise in public sector wages, namely in the healthcare and social assistance industry, where a number of large increases were recorded in Victoria under a plan to ensure wage parity with other states.

Private sector wages rose by just 0.5 per cent during the June quarter, according to Wednesday’s seasonally adjusted figures from the Australian Bureau of Statistics.

Year-on-year wage price index growth, while in line with predictions for June, has remained in a range of 2.3 per cent to 2.4 per cent since the September quarter of 2018 – well below RBA governor Philip Lowe’s target of “three point something”.

Economists said it was clear that spare labour market capacity had limited growth and that would continue.

“The outlook for wages growth is still fairly negative,” AMP Capital senior economist Diana Mousina said.

“Labour market underutilisation … is still high, productivity growth is low, unemployment expectations are high – which limits power for asking for wages rises – and broader issues like globalisation and technology are displacing jobs.”

Wage stagnation was a key reason the RBA delivered dual interest rate cuts in June and July to a record low 1.0 per cent, in a bid to free up spending and create more competition for jobs.

Ms Mousina said Westpac’s consumer confidence survey for August – also released on Wednesday – was further evidence the RBA’s cash rate reductions had yet to flow through to the economy.

Consumer confidence rose 3.6 per cent in August, bringing the index back to neutral after a 4.7 per cent fall the previous month.

BIS Oxford Economics’ Sarah Hunter said Wednesday’s wages data firmed up expectations the cash rate would be cut to a record low 0.75 per cent by the end of the year, and possibly cut again in early 2020.

July jobs figures on Thursday could also increase the pressure to bring forward further cuts, with economists expecting a slight uptick in unemployment to 5.3 per cent.

Callam Pickering, APAC economist at jobs site Indeed, said the underutilisation rate needed to ease towards 12 per cent from its current level of 13.5 per cent before RBA’s target wage growth could be achieved.

“That won’t happen overnight nor is it likely within the next year,” Mr Pickering said.

In original terms, annual wages growth to the June quarter 2019 by industry ranged from 1.7 per cent for wholesale trade to 3.3 per cent for healthcare and social assistance.

Electricity, gas and waste wages rose by 2.8 per cent over the year but growth was low in mining wages (up 2.2 per cent), retail wages (up 1.9 per cent) and information and media wages (up 1.8 per cent).

The 3.3 per cent annual growth in healthcare and social assistance wages was the strongest in six years.

Western Australia recorded the lowest annual wage growth of 1.6 per cent while Victoria recorded the highest of 2.9 per cent.

The Australian dollar edged lower after the figures were released, dropping from 68.03 US cents to 67.88 US cents by 1150 AEST.

Weaker than expected retail and industrial data out of China weighed the dollar down even further.

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