What does it all mean?

• Workers who were fortunate enough to receive a cash bonus, commission or incentive payment in the September quarter will be pleased. Including bonuses paid by employers, private sector wages were up by 3.0 per cent over the year – the strongest annual growth rate since December 2012.

• That said, broader wage growth, excluding bonuses, eased in the public sector in the September quarter following bumper pay rises in the Victorian public health care sector in the previous quarter. Wage growth fell in 12 out of 18 industries over the year to September, with the biggest falls in mining and manufacturing (both down 0.2 per cent). And annual wage growth decelerated in the largest states by population – New South Wales, Victoria and Queensland (down 0.1-0.2 per cent) in September. But annual real wages growth remained positive nationally.

• Consumer confidence remains choppy. In October, sentiment fell by 5.5 per cent to 4-year lows. Fast-forward to November and Westpac-Melbourne Institute’s consumer mood gauge rebounded by 4.5 per cent – the biggest lift since May 2016. That said, the sentiment gauge is down by 7 per cent over the year to November and has averaged 99 points this year – denoting that the number of pessimists slightly outweighs the number of optimists.

• So why are consumers so cautious? Concerns about job security resurfaced in November with consumers expecting unemployment to increase. In fact, the unemployment expectations sub-index lifted to the highest level since June 2017, driven primarily by a jump in Queensland jobless worries – the state with Australia’s highest unemployment rate.

What do the figures show?

Wage Price Index – September quarter

• The wage price index rose by 0.5 per cent in the September quarter following a 0.5 per cent increase in the June quarter. Annual wage growth fell from 2.3 per cent in the June quarter to 2.2 per cent in the September quarter – the slowest annual growth rate since June 2018.

• Private and public sector wages both rose by 0.5 per cent in the September quarter. Private sector wages rose by 2.2 per cent in the year to September – the weakest annual growth rate in 12 months. Public sector wages rose by 2.5 per cent over the year to September.

• Including bonuses (total hourly rates of pay), wages rose by 1.3 per cent – the biggest quarterly lift in 8 years – in the September quarter to be up by 2.8 per cent on a year ago – the equal strongest annual growth rate in 6½ years. Private sector wages rose by 1.4 per cent – the biggest quarterly gain in 5 years – in the September quarter and 3.0 per cent on the year – the strongest annual growth rate in 6½ years. Public sector wages rose by 0.7 per cent – the equal biggest quarterly gain in 3 years – in the September quarter and 2.4 per cent on the year.

• Industries with fastest annual wage growth: Health care & social assistance (up by 3.2 per cent); Electricity, gas, water and waste services (up by 2.7 per cent); Transport, postal & warehousing (up by 2.5 per cent); Professional, Scientific & technical services (up by 2.5 per cent); and Arts & recreational services (up by by 2.4 per cent).

• Industries with slowest annual wage growth: Information media & telecommunications (up by 1.7 per cent); Wholesale trade (up by 1.8 per cent); Manufacturing (up by 1.8 per cent); Retail trade (up by 1.9 per cent); and Construction (up by 1.9 per cent).

• Annual wage growth across States & Territories: Victoria (up by 2.8 per cent); ACT (up by 2.5 per cent); Tasmania (up by 2.3 per cent); South Australia (up by 2.3 per cent); NSW (up by 2.2 per cent); Northern Territory (up by 2.2 per cent) and Western Australia (up by 1.6 per cent).

• In terms of real wage growth, all states and territories except Western Australia have annual wage growth exceeding inflation. Doing best is Northern Territory: wages are up 2.2 per cent versus 0.5 per cent inflation. But real wage growth is flat in Western Australia.

Consumer confidence – November

• The Westpac/Melbourne Institute survey of consumer sentiment index rose by 4.5 per cent – the biggest monthly gain in 3½ years – to 97.0 points in November. But consumer sentiment is still below the longer term average of 101.5 points.

• Looking at the Westpac survey: the current conditions index rose by 3.9 per cent – the biggest monthly increase in 3½ years – to 101.2 points. And the expectations index rose by 5.0 per cent – the most in 16 months – to 94.2 points.

• All five components of the index rose in November:

• The estimate of family finances compared with a year ago rose by 5.2 per cent to 84.4 points;

• The estimate of family finances over the next year rose by 5.7 per cent to 98.6 points;

• Economic conditions over the next 12 months rose by 4.0 per cent to 90.6 points;

• Economic conditions over the next 5 years rose by 5.2 per cent to 93.5 points;

• The measure on whether it was a good time to buy a major household item rose by 3.0 per cent to 117.9 points.

• Housing outlook: A good time to buy a dwelling? The index rose by 2.1 per cent to 119.0 points to be up by 3.7 per cent on the year. House price expectations fell by 1.6 per cent to 135.8 points to be up by 37.2 per cent on a year ago.

• Unemployment expectations rose by 3.6 per cent to 136.5 points in November (implying a weaker job market).
Reserve Bank of New Zealand interest rate decision

• The Reserve Bank of New Zealand (‘RBNZ’) has held the official cash rate at a record low of 1.00 per cent at its meeting today, surprising economists expecting a 25 basis point cut to 0.75 per cent.

• The RBNZ Monetary Policy Committee said, “Economic developments since the August Statement do not warrant a change to the already stimulatory monetary setting at this time.”
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?

• Aussie pay packets are increasing at a glacial pace. The lower increase in the annual minimum wage on July 1 (up by 3.0 per cent) compared with last year (up by 3.5 per cent) was a factor. But if you include bonuses, private sector pay packets grew at the strongest annual growth rate in 6½ years in the September quarter. And real wages continue to lift given benign consumer price increases.

• The data does continue to highlight, however, that the national unemployment rate needs to be closer to 4-4.5 per cent and the underutilisation rate nearer 12 per cent in order to see annual growth in pay packets of around 3 per cent. But workforce participation is near record highs and population growth remains solid, while economic growth is sluggish, suggesting that spare capacity will remain in the labour market over the near term.

• Rising unemployment and robust population growth are contributing to even slower wage growth in Queensland – where job insecurity is now at 2½-year highs. Not good news considering the Sunshine State has been a relatively ‘bright spot’ in terms of annual retail spending growth.

• The improvement in consumer sentiment in November is welcome news, but Aussies remain cautious. Sentiment towards the property market has lifted and consumers are now weighing-up whether to open their purses and wallets ahead of bumper online sales this month. But Westpac and the Melbourne Institute have cautioned – ahead of the Christmas trading period – that “One in three Australians are planning to spend less on gifts than they did last year, with a further 54 per cent expecting to spend about the same. Just 11 per cent of consumers are planning to spend more this year.”

• All eyes are now on tomorrow’s jobs report. CommBank Group economists have pencilled in an interest rate cut in February 2020.

Published by Ryan Felsman, Senior Economist, CommSec