Australia: Excess slack in the labour market continues - Westpac

Justin Smirk, Research Analyst at Westpac, explains that as excess slack in the Australian labour market continues, particularly in the broader measures of labour market utilisation, they are not surprised by the on-going weakness in wage outcomes.

Key Quotes

“Total hourly wages ex bonuses increased 0.5% in Q1, in line with expectations. It was a lift from 0.4% in Q4 (which was revised down from 0.5% and is the record low quarter print) but it still holding the surprisingly soft momentum. The annual rate is holding a historical low at 1.9%yr.”

“Private sector wages grew 0.5% holding the annual rate at 1.9%yr. Public sector wages grew 0.6% with the boost coming from education (0.9%qtr). Public sector wage inflation is holding around 2.3%yr which is just up on the 2016 Q3 record low of 2.2%yr.”

“The relative softness in the labour market can be seen in broader measures, such as underemployment where a worker is willing and able to work more hours than they do, has coincided with record low wage growth.”

“By state, WA wages grew just 1.2%yr and remains the state with the lowest wage growth. Wages have lift a bit in Vic (2.0%yr from 1.9%yr) but were flat in NSW (2.1%yr) and eased a touch in Qld 1.9%yr from 2.0%yr) but we are still seeing the east coast mining state diverge from WA's steady decline. Tas was the fastest state at 2.3%yr with SA second on 2.2%yr.”

“Worth noting in the industry data is the modest pick-up in manufacturing wages, 2.0%yr from 1.8%yr in Q1, while mining languishes at just 0.6%yr down from 1.0%yr in Q4. The strongest industries for wages were health care and education & training (both 2.3%yr), finance, accommodation & food services and utilities (all at 2.2%yr).”

“Nowhere in the data is there any indication that the recent rise in the Terms of Trade is having any positive impact on wages.”

“Wages growth continues to underperform expectation relative to the performance of the broader economy. We suspect that it goes further than just the underemployment story even if this is an important factor. We have found that the sectors that are growing the fastest are also there sectors where labour supply has been most responsive via rising female participation. In addition low inflation expectation and on-going job insecurity has shifted a loft of bargaining power to the employer. As such we expect that wages will continue to underperform for at least the remainder of this year.”