Wages lift modestly; Optimism on home buyingWage Price Index; Consumer sentiment
Wages: The wage price index rose by 0.6 per cent in the June quarter after a 0.5 per cent rise in the March quarter. Annual wage growth lifted from 2.0 per cent to 2.1 per cent.
Bonuses paid: Including bonuses (ordinary time hourly rates), wages rose by 0.5 per cent in the June quarter to be up by 2.5 per cent on a year ago, down from the 3-year high of 2.7 per cent in the March quarter.
Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment index fell from 4½- year highs in August. After rising by 3.9 per cent to 106.1 in July, the index fell 2.3 per cent to 103.6 in August. The index is above its long-term average of 101.4. A reading above 100 denotes optimism.
China house prices: House prices rose by 1.2 per cent in July to be up 5.8 per cent on the year – the highest annual rate since September 2017. 
What does it all mean?
The Reserve Bank stressed that it would be a gradual process of faster economic growth, a tighter job market, rising wages and prices and higher interest rates. And so it is. But wage growth has bottomed. The quarterly lift in wages was actually the biggest in four years.
Employers continue to top up wages with bonus payments. Wages are up 2.5 per cent on a year ago if bonus payments are included, ahead of the 2.1 per cent inflation rate.
It’s always important to relate wages to prices. Wage growth is slower than in the past, but so is price inflation. Wages are ahead of prices, especially when you use a broader measure of prices – the household consumption deflator. And positive real wage growth is positive for spending.
Aussie consumer confidence continues to bounce around. In July the index hit 4½-year highs, but moderated in August. The sharemarket performance has been positive, although fears of a widening trade war still dominate. Home prices are softening but more people view this as a good time to buy a home. And a weaker Aussie dollar would have been negatively viewed by Aussie consumers. Still, the number of surveyed optimists has exceeded the number of pessimists for nine consecutive months.
Young people (aged 18-24 years) are the most confident in 2½ years. The improved sentiment no doubt reflects the softening of home prices and therefore the lift in housing affordability.
What do the figures show?Wage price index
The wage price index rose by 0.6 per cent in the June quarter after a 0.5 per cent rise in the March quarter. Annual wage growth lifted from 2.0 per cent to 2.1 per cent.
To 2-decimal points, wages rose 0.62 per cent in the June quarter – the biggest increase in four years. Annual growth lifted from 1.99 per cent to a 2½-year high of 2.14 per cent.
The ABS reported that “Wage growth in the Wholesale trade, Construction and Health care and social assistance industries were the main contributors to the June quarter 2018 index growth.”
Private sector wages rose by 0.5 per cent in the June quarter while public sector wages rose by 0.6 per cent. Annual growth of private sector wages rose from 1.9 per cent to 2.0 per cent. Annual growth of public sector wages held at 2.4 per cent.
Including bonuses (ordinary time hourly rates), wages rose by 0.5 per cent in the June quarter to be up by 2.5 per cent on a year ago, down from the 3-year high of 2.7 per cent in the March quarter.
Industries with fastest annual wage growth: Health care & social assistance (up by 2.7 per cent); Education & training (up by 2.5 per cent); and Accommodation and food services, Finance & insurance services and Public administration & safety (all up by 2.3 per cent).
Industries with slowest annual wage growth: Mining (up by 1.3 per cent); Retail trade (up by 1.5 per cent); Rental, hiring and real estate services (up by 1.7 per cent).
Annual wage growth across States & Territories: NSW, 2.1 per cent; Victoria, 2.5 per cent; Queensland, 2.2 per cent; South Australia, 2.1 per cent; Western Australia, 1.5 per cent; Tasmania, 2.5 per cent; Northern Territory, 1.5 per cent; and ACT, 1.8 per cent.
In terms of real wage growth, doing best is Queensland; wages are up 2.2 per cent versus 1.7 per cent inflation. Real wage growth is 0.4 percentage points in Western Australia.
Consumer confidence
The Westpac/Melbourne Institute survey of consumer sentiment index fell from 4½-year highs in August. After rising by 3.9 per cent to 106.1 in July, the index fell 2.3 per cent to 103.6. The index is above its long-term average of 101.4. A reading above 100 denotes optimism. The survey was conducted from August 6-11.
The current conditions index fell by 1.1 per cent and the expectations index fell by 3.0 per cent.
All five of the components of the index fell in August after rising in July:
• The estimate of family finances compared with a year ago fell by 0.6 per cent;
• The estimate of family finances over the next year fell by 1.1 per cent;
• Economic conditions over the next 12 months fell by 4.9 per cent;
• Economic conditions over the next 5 years fell by 3.1 per cent;
• The measure on whether it was a good time to buy a major household item fell by 1.7 per cent.
Housing outlook: A good time to buy a dwelling? The index rose by 5.5 per cent to 2-year highs and is up 15.1 per cent on the year. House price expectations rose by 0.3 per cent but is down by 22.7 per cent on a year ago. 
Unemployment expectations: Unemployment expectations rose by 2.8 per cent but was still down by 2.4 per cent over the year.
What is the importance of the economic data?
The Wage Price Index has been compiled since September quarter 1997 and measures quarterly changes in wage and salary costs for employees. The index is based on a representative sample of employees, and includes measures of non-wage costs including superannuation, payroll tax, public holiday and workers compensation. The Wage Price Index is useful in measuring wage pressures in the economy. While strong growth in wages would boost domestic spending, it could also serve to lift employer costs and prices and add to economy-wide inflationary pressures. The wage price index is a measure of hourly pay rates (excluding bonuses).
Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
What are the implications for interest rates and investors?
Reserve Bank forecasts continue to be met. The economy is moving in the right direction. Eventually wage growth will lift to the more ‘normal’ range of 3-4 per cent but the process will be gradual. Today, businesses can get work done locally, but they can also out-source some functions globally.
Consumers would like faster growth of wages. But wages still out-pace prices, under pinning spending. And the wage bill isn’t stressing businesses, serving to boost employment. Basically it is win-win.
The lift in home buying intentions is positive for housing-focused industries and professions.
CommSec doesn’t expect a change in official interest rates until at least February 2019.
Published by Craig James, Chief Economist, CommSec