Latest economic data
  • Wage growth, as represented by the Wage Price Index (WPI), grew by 1.00 per cent (to two decimal places) in the September quarter, the fastest quarterly growth rate in 10½ years (since March quarter 2012).
  • Annual WPI growth lifted from 2.63 per cent in the June quarter to 3.13 per cent in the September quarter, the fastest growth for 9½ years (since March 2013). Economists had expected annual wage growth of 3.0 per cent.
  • Including bonuses (total hourly rates of pay), wages rose by 1.41 per cent in the September quarter to be up by 3.76 per cent on a year ago, the strongest annual growth rate in 11½ years (since March 2011).

The Big Picture  

  • The job market remains tight. By most accounts the jobless rate is at the point where further falls in unemployment will lead to faster growth in wages. That is, NAIRU has been achieved – the non-accelerating inflation rate of unemployment. Wage growth is continuing to lift to the levels preferred by the Reserve Bank. And wage growth rates across the board are now running at the fastest rates recorded for around a decade.
  • The Reserve Bank ‘ready-reckoner’ is that 3.5 per cent wage growth is consistent with 2.5 per cent inflation and 1 per cent productivity growth. Now the trick is to slow down the economy, and get inflation under control, while achieving a soft landing for the economy, holding on to job gains and allowing workers to achieve a fair rate of wage growth.
  • Other measures of wages – such as the advertised salary index from SEEK – show slightly higher annual growth rates, but slower than levels recorded earlier in the year.
  • The Reserve Bank and Federal Government would no doubt be happy at the latest wage outcomes. Wage growth is higher, but certainly some ways away from being a ‘problem’. And of course wages are still not keeping pace with prices.
  • It’s important to remember that the September quarter figures were heavily affected by the Fair Work Commission decision. That influence won’t be pushing up wage growth to the same extent in coming quarters.

The Equity Lens: What does it mean for investors?    

  • The jobless rate is low and, wage growth is lifting to more preferred levels. At face value employment and wage data are supportive of consumer spending and therefore supportive of consumer staples and consumer discretionary sectors.
  • But inflation-adjusted or real wages fell by 4.2 percentage points over the year to September, the biggest gap on record, and alongside rising borrowing costs is likely to weigh on consumer spending in the coming months.  Consumers are no doubt running down buffers and that will continue in 2023.
What do you need to know?

Wage Price Index (WPI) – September quarter

  • Wage growth, as represented by the Wage Price Index (WPI), grew by 1.00 per cent (to two decimal places) in the September quarter, the fastest quarterly growth rate in 10½ years (since March quarter 2012).
  • Annual WPI growth lifted from 2.63 per cent in the June quarter to 3.13 per cent in the September quarter, the fastest growth for 9½ years (since March 2013).
  • Including bonuses (total hourly rates of pay), wages rose by 1.41 per cent in the September quarter to be up by 3.76 per cent on a year ago, the strongest annual growth rate in 11½ years (since March 2011).
  • Private sector wages rose by 1.22 per cent in the September quarter to be 3.44 per cent higher when compared to a year ago, the strongest annual pace in almost a decade (since December 2012). Including bonuses, private sector wages grew by 1.63 per cent in the quarter to be up 4.14 over the year – the strongest annual growth rate in 11½ years (since March quarter 2011).
  • Public sector wages lifted by 0.56 per cent in the September quarter to be up 2.42 per cent on the year. Including bonuses, public sector wages grew by 0.77 per cent in the September quarter to be up 2.49 per cent on a year ago – fastest in just over 3 years.
  • Industries with fastest annual wage growth over the year to September: Retail (up 4.23 per cent); Rental, hiring and real estate services (up 4.02 per cent); and Wholesale trade (up 3.75 per cent).
  • Industries with slowest annual wage growth over the year to September: Education and training (up 2.24 per cent); Public administration and safety (up 2.45 per cent); and Transport, postal and warehousing (up 2.47 per cent).
  • By state and territories over the year to September: NSW (up 3.13 per cent, 10-year high); Victoria (up 3.09 per cent, 9½-year high); Queensland (up 3.42 per cent, 10-year high); South Australia (up 3.33 per cent, 9-year high); Western Australia (up 3.30 per cent, 9-year high); Tasmania (up 3.58 per cent, 11-year high); Northern Territory (up 2.46 per cent); and the ACT (up 2.72 per cent).
  • The ABS noted: “Labour market pressures in the private sector combined with the largest Fair Work Commission award increase in more than a decade saw rises in both the size of average wage changes and the proportion of private sector jobs recording a wage change. The average size of hourly wage increase for those jobs where the wage rate moved was 4.3 per cent, up from 2.9 per cent in the September quarter 2021. Nearly half (46.4 per cent) of private sector jobs recorded a change in their hourly wage rate this quarter compared to around one third (33.9 per cent) in the same quarter last year.”
Originally published by Craig James, Chief Economist, CommSec