Household incomes dismal, wages flat and spending props up the economy. What could possibly go wrong?
ABC News
September 7 2017
It is now 26 years since Australia was last mired in recession.
Key points:
Average weekly earning dropped in the second quarter and are flat over the year
Household spending growing at long term average
Household savings in freefall, down to GFC levels
You also have to go back 26 years to find a similar sustained period of weakness in Australian wages.
"Wages flat, household incomes dismal," was the take of Deutsche Bank's chief economist Adam Boyton after scanning the June quarter's GDP numbers.
"Wages growth remains non existent in the national accounts."
Mr Boyton throws a lot of numbers at the wages canvas, and the results are not pretty.
"Average earnings are just 0.1 per cent higher over the year to the June quarter, which given headline inflation of 1.9 per cent paints a dismal picture; while labour productivity fell 0.3 per cent in the quarter to be 0.5 per cent lower over the year," he said.
Average earnings shrank
Negligible wage growth and falling productivity is not generally symptomatic of an economy in rude health.
Interestingly, the national accounts' average compensation of employees checking in at 0.1 per cent growth over the year is even more insipid than the underwhelming 1.9 per cent dialled up in the Bureau of Statistics' alternative measure, the Wage Price Index (WPI).
Wage cut could backfire
Businesses are hoping to profit from the Sunday penalty rate cut, but their workers are also ultimately their customers.
The difference is important given average earnings is a far broader measure than the WPI.
The WPI follows price changes in a fixed "basket" of jobs — or average weekly ordinary time earnings — and is not affected by changes in quality and quantity of work.
The national accounts earnings figure looks at the total wage bill — including overtime and bonuses — the money actually coming into households.
NAB chief economist Alan Oster said part of the difference could be explained by an overall shift to lower paid and part-time jobs.
A year or so ago, the RBA indicated average earnings was the number the pundits should be studying. It was growing strongly, up around 2 per cent annualised, and seemed to vindicate the bank's view that as the labour market tightened, wages would go up.
"The national accounts show that didn't happen, nothing is getting better," Mr Oster said.
Given average earnings went backwards over the quarter — down 0.1 per cent — and pretty well flat-lined for the year, it could argued things on the wages front are getting worse.
More spending, less fun?
Wages at a 50-year low as a share of GDP and the money households do get is going to meet the rising cost of necessities, writes Stephen Letts.
That consumption grew as solidly as it did given after Q1 GDP Morgan Stanley's economics team forecast there would be a real pay cut of 2.7 per cent in 2017 and 1 per cent in 2018, was heroic.
Household spending rose by 0.7 per cent over the quarter, or 2.6 per cent over the year — roughly in line with average growth over the past decade..
CommSec's analysis points to more households giving up cigarettes, cutting back on newspapers and holding on to their cars for longer as well.
"Aussies spent more on mobile phones and the internet and forked out more on furniture, carpets and household appliances — consequences of more homes being built," CommSec's Craig James said.
"But it is when prices are taken into account when you realise why consumers aren't happy.
"The sorts of things we don't like to spend our money on have gone up the most."
That has seen necessities like utility bills up almost 9 per cent, insurance and financial products rising 7 per cent and spending on public transport fares, education fees and health bills up around 5 per cent.Household incomes dismal, wages flat and spending props up the economy.
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