Annual growth of public sector wages hits record low
Strongest lift in job vacancies for 2 years
Wage Price Index; Skilled job vacancies
Wages: The wage price index rose by 0.5 per cent in the December quarter (consensus: +0.5 per cent). Annual wage growth was steady at 2.2 per cent in the December quarter – the equal slowest annual growth rate since June 2018.
Private & public sector wages: Private sector wages rose by 0.5 per cent in the December quarter. Public sector wages rose by 0.4 per cent. Both private and public sector wages rose by 2.2 per cent in the year to December – the slowest annual growth rate for public sector wages on record (since records began in September 1997).
Bonuses paid: Including bonuses (total hourly rates of pay), wages rose by just 0.1 per cent in the December quarter to be up by 2.2 per cent on a year ago – the slowest annual growth rate in 2 years. Private sector wages were flat in the December quarter but were up by 2.3 per cent on the year – also the slowest annual growth rate in 2 years. Public sector wages rose by 0.5 per cent in the December quarter and 2.2 per cent on the year – the slowest annual growth rate in 3 years.
Skilled job vacancies: In trend terms, the Internet Vacancy Index increased by 0.7 per cent (or 1,100 jobs advertised) in January – the biggest gain in over 2 years.
The data on wages highlights the costs faced by businesses and gives insights into future interest rate decisions. The internet job vacancies data is a leading indicator of the job market and therefore important for consumer-focussed stocks and companies.
What does it all mean?
• Aussie workers are becoming accustomed to mediocre pay rises. In fact, annual wage growth of 2.2 per cent in the December quarter, 2019 remains well below annual gains of between 3-4 per cent last seen during the mining construction boom. And now the annual growth rate of public sector workers has slowed to record lows of 2.2 per cent. Annual real wages growth – the difference between what we get paid and consumer prices (inflation) – has turned negative in both Queensland and Tasmania.
• So why is wage inflation contained, despite strong job creation? The simple answer is that Australia has an excess supply of workers. Population growth remains elevated. And workforce participation has lifted to record highs, driven by a surge in females and older Aussies. In fact, females have accounted for 67 per cent of the 262,500 jobs added over the year December 31 2019. Flexible work arrangements and rising mortgage debt have also encouraged those working part-time or casually to seek out greater hours of work. But the annual growth rate of monthly hours worked for all jobs slowed to 2-year low of 1.7 per cent in trend terms in December.
• The best representation of ongoing slack in the labour market – the underemployment and underutilisation rates – remained too high at 8.3 per cent and 13.4 per cent, respectively in December. The lift in the underutilisation rate has coincided with a decline in wage growth. With only gradual progress expected in achieving its ‘full employment’ target of around 4.5 per cent (currently at 5.1 per cent), the Reserve Bank expects annual wage growth to remain broadly static at 2.2-2.3 per cent over the next few years. The upside of course, is that subdued wage gains may continue to encourage hiring by companies under profit margin pressures due to sluggish demand.
• But it’s not all bad news. Skilled job vacancies rose by 1,100 positions or 0.7 per cent – the biggest lift in over two years – in January. Despite the disruption caused by the tragic bushfires on Australia’s East Coast, job ads increased in seven out of eight occupation groups – led by stronger demand for machinery operators and drivers, labourers, sales workers, and clerical and administrative workers.
What do the figures show?
Wage Price Index – December quarter
• The Wage Price Index rose by 0.5 per cent in the December quarter (consensus: +0.5 per cent). Annual wage growth was steady at 2.2 per cent in the December quarter – the equal slowest annual growth rate since June 2018.
• Private sector wages rose by 0.5 per cent in the December quarter. And public sector wages rose by 0.4 per cent. Both private and public sector wages rose by 2.2 per cent in the year to December – the slowest annual growth rate for public sector wages on record (since records began in September 1997).
• Including bonuses (total hourly rates of pay), wages rose by just 0.1 per cent in the December quarter to be up by 2.2 per cent on a year ago – the slowest annual growth rate in 2 years. Private sector wages were flat in the December quarter but were up by 2.3 per cent on the year – also the slowest annual growth rate in 2 years. Public sector wages rose by 0.5 per cent in the December quarter and 2.2 per cent on the year – the slowest annual growth rate in 3 years.
• Industries with fastest annual wage growth: Health care & social assistance (up by 3.1 per cent); Electricity, gas, water and waste services (up by 2.9 per cent); Transport, postal & warehousing (up by 2.4 per cent); and Professional, Scientific & technical services (up by 2.3 per cent).
• Industries with slowest annual wage growth: Information media & telecommunications (up by 1.6 per cent); Retail trade (up by 1.8 per cent); Manufacturing (up by 1.8 per cent); and Construction (up by 1.8 per cent).
• Annual wage growth across States & Territories: Victoria (up by 2.7 per cent); Tasmania (up by 2.6 per cent); Northern Territory (up by 2.5 per cent); ACT (up by 2.3 per cent); South Australia (up by 2.3 per cent); NSW (up by 2.1 per cent); Queensland (up by 1.8 per cent); and Western Australia (up by 1.7 per cent).
• In terms of real wage growth, all states and territories except Queensland and Tasmania have annual wage growth exceeding inflation. Doing best is Northern Territory: wages are up 2.5 per cent versus 0.5 per cent inflation. But annual real wages fell by 0.2 per cent in Queensland and by 0.1 per cent in Tasmania in the December quarter.
Skilled Job Vacancies – January
• The Department of Employment Internet Vacancy Index rose by 0.7 per cent (or 1,100 job advertisements) in January – the biggest gain in over 2 years. But the index is 7.5 per cent lower than a year ago, although it is up 8.6 per cent on levels recorded five years ago.
• Occupations: In January 2020 “Job advertisements increased in seven of the eight broad occupational groups and remained steady in one. The strongest gains were recorded for Machinery Operators and Drivers (up by 1.5 per cent), followed by Labourers (up by 0.7 per cent), Sales Workers and Clerical and Administrative Workers (both up by 0.6 per cent).”
• Over the year to January 2020 “Job advertisements decreased in all occupational groups. The strongest declines were recorded for Managers (down by 9.6 per cent), Clerical and Administrative Workers (down by 9.5 per cent) and Sales Workers (down by 9.0 per cent).”
• Detailed occupations: Over the year to January 2019, “Seven of the 48 detailed occupational groups recorded an increase in job advertisements. The largest increase was recorded for Education Professionals (up by 410 job advertisements), followed by Health Diagnostic and Therapy Professionals (up by 390 job advertisements), Hospitality Workers (up by 170 job advertisements) and Legal, Social and Welfare Professionals (up by 100 job advertisements).”
• And “The largest decrease over the year was recorded for General-Inquiry Clerks, Call Centre Workers, and Receptionists (down by 1160 job advertisements), followed by Corporate Managers (down by 910 job advertisements), Business, Finance and Human Resource Professionals (down by 900 job advertisements), Numerical Clerks (down by 870 job advertisements), Automotive and Engineering Trades Workers (down by 760 job advertisements).”
• States/Territories: Job vacancies increased in five states and both territories in January: NSW (up by 0.6 per cent), Victoria (up by 0.3 per cent); Queensland (up by 0.9 per cent); South Australia (up by 0.6 per cent); Western Australia (up by 1.7 per cent); Tasmania (down by 0.7 per cent); Northern Territory (up by 1.7 per cent); and ACT (up by 0.6 per cent).
• Over the year to January 2020, job vacancies decreased in four states and one territory: NSW (down by 13.5 per cent), Victoria (down by 9.4 per cent); Queensland (down by 2.7 per cent); South Australia (up by 0.6 per cent); Western Australia (up by 5.3 per cent); Tasmania (down by 14.5 per cent); Northern Territory (down by 6.2 per cent); and ACT (up by 9.2 per cent).
• Regions: “Over the year to January 2020, in three month moving average terms, job advertisements increased in 13 of the 37 IVI regions. The strongest increases were recorded in Wimmera & Western, Victoria (up by 10.8 per cent), followed by Yorke Peninsula & Clare Valley, South Australia (up by 7.1 per cent), South West Western Australia (up by 6.9 per cent), Gippsland, Victoria (up by 6.8 per cent) and Bendigo & High Country, Victoria (up by 5.9 per cent).”
• “The strongest decreases in job advertisements were recorded in Launceston and Northeast, Tasmania (down by 18.6 per cent), followed by Sydney (down by 17.7 per cent), Tamworth and North West, New South Wales (down by 17.0 per cent), New South Wales North Coast (down by 16.2 per cent) and Hobart & Southeast, Tasmania (down by 15.8 per cent).”
• “Canberra & ACT (up by 5.5 per cent) and Perth (up by 5.4 per cent) were the only capital city regions to record an increase in job advertisements over the year to January 2020.”
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).
• The Department of Employment releases a monthly Internet Vacancy Index. The index is based on a count of online job advertisements newly lodged on three main job boards (SEEK, CareerOne and Australian JobSearch) during the month. The index is the only publicly available source of detailed data for online vacancies, including around 350 occupations (at all skill levels), as well as for all states/territories and 37 regions.
What are the implications for interest rates and investors?
• Aussie pay packets are increasing at a glacial pace and salaried workers may need to adjust their pay expectations accordingly. Real wages growth – the difference between pay rises and inflation – fell by 0.2 per cent in the December quarter. A decline in public sector wages growth pushed the annual growth rate in Queensland wages down by 0.3 percentage points to 1.8 per cent – with real annual wages turning negative.
• Workers had a decent bump in pay due to bonus payments in the September quarter (up by 2.8 per cent over the year), but the annual growth rate of pay including bonuses fell to 2-year lows of 2.2 per cent in December as employers ‘tightened their belts’. Annual growth of pay packets eased in 11 of the 18 industries, serving to highlight broad-based weakness across the economy due to weak consumer demand.
• The data does continue to highlight 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 subdued, suggesting that spare capacity will remain in the labour market over the near term.
• But the job market seems to be moving in the right direction. Indeed if the lift in skilled vacancies – both the most in over 2 years – leads to lower jobless rates and improved consumer spending, the Reserve Bank will be less inclined to cut interest rates. The all-important January jobs data is out tomorrow and will be closely observed for potential bushfire and novel coronavirus impacts.
• Commonwealth Bank Group economists still expect the Reserve Bank to cut interest rates in the coming months to support the economy. That said, we acknowledge that there is a strong case for more fiscal stimulus rather than a further easing in monetary policy to stimulate the economy.
Published by Ryan Felsman, Senior Economist, CommSec