Weekly wages rise in May quarter

 

ABS average weekly earnings is out and shows wage pressures in the pipeline in the first half of the year. As you can see from the chart above wages appear to be bouncing off the bottom.

The RBA would not like this. In the below table, green is at or below the national average and red is above. Three subs sets of employment are having a shocker but the other 15 subsets are doing quite well in terms of wage rises as viewed by yoy moves.

Looking forward, other indicators of wages don’t support this data – the more recent June Labour Price Index showed diminishing pressures yesterday, as did the August Melbourne Institute Wages Report and both were reenforced by July unemployment figures from the ABS and  Roy Morgan.  With the prospects for employment deteriorating the outlook for further strong wage increases is fading. Indeed, the majority of industry groupings are seeing a deceleration in yoy growth rates.

 

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Comments

  1. How is RBA doing now HnH? Still doing exceptional with inflation about its target band, unemployment at 5.1% and wages rising…

    Just because people are not spending in retail and home owners are feeling the size of their massive mortgages, doesnt mean McKibbon is wrong about inflation being a problem.

    I note similar inflation pressures in UK and US…despite their sluggish growth.

    China and India are also about to get more and more civil unrest…throw in Israel and AUSTRALIA! and you have yourself a world wide problem of consumer inflation and asset delfation.

    Yeah, the RBA are exceptional?!?!

    • Give it a rest, Stav, You’ve made your point. I don’t deny the existence of inflationary pressures. I deny the existence of the immediate need to crush them and bring on a collapse.

    • The problem is that you can only play the cards you’re dealt.

      The UK and other countries have little choice but to let inflation run as any increase in interest rates will kill consumers due to private debt levels.

      The only solution was to manage the level of debt in the first place. This is where the RBA, along with regulators (APRA) failed abysmally by setting the economic environment that encouraged the increase in debt and fail to police the actions of corporations that facilitated it beyond all reasonableness.

      The mining complex seems to be holding it all together, but only just.

      • thats a cop out bubbelicous….that the rest of the population should endure lower living standards due to rampant inflation in order to protect an overleveraged minority.

        your line of thinking is exactly why the world is in the state it is.

        personally id rather see the irresponsiblly overleveraged go broke than endure ever rising prices for the things i need.

          • Funny that the idea we should proactively seek to pre-empt and avoid the problem rather than bankrupt one sector of society after the horse has bolted can’t get your support.

          • No. I don’t think any lessons will be learned, or anything will be truly fixed, unless we have a hard-reset and the pain that will come with it.

        • Not a cop out, just stating facts.

          Are you sure the overleveraged are in the minority?

          I feel the same frustration as other “savers”, but we need to understand that the powers that be aren’t going to step in to make houses cheaper for as a reqard for being prudent. The flow on effects of bursting the debt bubble won’t discriminate.

          • you havent stated any facts? you are justifying bad policy, that is all. You think inflation doesnt also kill consumers?

            it is a cop out, and your logic is flawed anyway. on one hand you say is better to preempt, then you say best to do nothing? and whats it got to do with making houses cheaper? you were talking about keeping rates low in the face of inflation in order to protect the overleveraged. Thats what i disagreed with.

          • GB, it’s all fine to have vitriol and be angry but don’t let that cloud your interpretation of what’s written above.

            The fact is that private debt levels are excessive. The current state of the economy is such that the powers that be can either;

            (a) Raise interest rates to fight inflation. Result – kill the economy. This is not just going to affect the overleveraged, but will result in plenty of collateral damage as the economy is impacted more broadly (e.g. retail & manufacturing).

            (b) Attempt to maintain a ‘balance’, with the economy on life support (until it can restructure, deleverage, etc.) and let inflation run. Also not a perfect solution, but not likely to result in a full blown recession or worse.

            The result is that people like you and me are impacted by an inflationary environment and need to act to insulate ourselves.

            I maintain that (b) is the prevailing strategy that has been adopted (doing nothing as you term it).

            What would have been better is to not get into this position in the first place through a little vision from our regulators, but since that didn’t happen we are where we are.

            I appreciate your angst with what’s happening, but I dispute that it is a cop out / apologist approach, simply an observation.

          • it not a vitriolic or angry response? your silly idea has been challenged and you dont like it. but ok lets go with option B then. that is just working out beautifully in the US and Europe wouldnt you say?

          • just re read your post and can see why we disagree.

            you think raising interest rates to fight inflation = kill the economy. rasing interest rates has NEVER “killed” an economy.

            it is actually rising inflation left unchecked that kills economies.

            what about this statement:
            “and let inflation run”

            good luck with that bernank-elicious!

            I dont think you are a saver either, no genuine saver would share your thoughts. You are debtor which is why you are so pro-inflation.

      • +1 Bubblelicious.

        Regarding the mining comment, that is so true. I don’t think this current government know what’s happening in mining either, and there are alot of other options for small/medium size miners (likewise for BHP etc). It’s been a slow move away from Australia for the small/mid miners, but it happening faster now and only if you have your head in the sand will you not see it. There are Australian coal miners getting mines going in Indonesia in a year (coal on to a boat as well), and you just can’t do that here.

        Even BHP will before long loose it Manganese dominance. It’s interesting to most other countries welcome our miners, but they have such a low acceptance in this country. Mining will continue and it will be ASX listed, but less will be done in this country long term IMO.

        There is so much uncertainty about gas/coal/aluminum and probably more that this sovereign risk will impact IMO. As far as the RBA/Treasury are concerned mining will boom for a very long time, but will it?

        • +100 GB – this benign view of inflation will change when people pay over $10 to pick up the milk and bread…see what that does to the economy – and society!

          No economy has ever been ruined by raising rates and maintaining inflation. It will hurt some, but as Bubblelicious admits – this was caused by over a decade of unsustainable debt build up.

          Its totally unfair to then change the rules and say, well, inflation doesnt matter now – because people are in debt – so we will inflate their debt away and punish prudent savers. Why not leverage up as much as possible from now on…what is the point in making wise decisions with your cash when the debt is rewarded.

          See the thing is, we are not just solving this financial crisis – I plan on being alive for another 40-50 years.

          If we dont learn from this, then we will have another crisis like this in two decades time.

          Racking up debt to pay for overpriced houses was never a smart thing to do and no one forced them to. I am so sick of hearing about people who just had to buy a house. You dont, you can rent and if more people rented – or lived at home – or shared house…then we wouldnt have this overleveraged society that gets hysterical leading up to the first Tuesday of every month.

          Lessons need to be learnt and savings cannot be punished.

          What will happen if inflation kicks in, is that the people with money will buy gold or leave Australia with their dollars to a cheaper place to live. We will then be left with Harvey Norman, Wayne Swan and a bunch of The Block watching morons trying to make our economy work.

          Good luck with that! I will be somwhere in the developing world living like a king and laughing from abroad.

          Australian’s not only get the politicians they deserve, they will also get the economy and inflation they deserve.

    • Keep making your point Stav, you’re spot on. We live in a bleeding heart, nanny state that either can’t take a hard decision or is governed by those who can’t act independently.

      H&H, historically have you ever seen the need for rate increases? In essence are they not supposed to slow economies and crush the imprudent, where the data supports it? That’s data, not perception/subjectivity/sentiment!

    • Deus Forex Machina

      Hey Hey…from the Sword

      These numbers are gross wages…

      the ABS says “Average weekly earnings statistics represent average gross (before tax) earnings of employees and do not relate to average award rates or to the earnings of the ‘average person’. Estimates of average weekly earnings are derived by dividing estimates of weekly total earnings by estimates of the number of employees.”

      Hope this helps

      • Estimates! I am pretty confident that at least one sector average quoted in the table would more closely reflect net weekly earnings – perhaps others are not accurate as well.

  2. There is a LOT of inflation to come through in the next decade.

    This WILL result in equity valuations pushed down to 6x-7x.

    We currently sit around 12x-13x.

    Property would be expected to rise with inflation – but i suspect we are already so over priced, that inflation and our low productivity could ravage property valuations over time. Probably not noticeable in Nominal terms though.

  3. Notice that the industry giving us Dutch disease has the highest wages. Which leads me to repeat http://www.macrobusiness.com.au/2011/06/dutch-disease-and-jobs/#comment-41338 :

    Almost by definition, the industries that cause Dutch Disease can afford to pay higher wages than the industries that suffer from it.

    So the obvious remedy is to relieve low-wage employers of payroll tax (http://is.gd/ptprogress) and the Superannuation Guarantee (http://is.gd/bc4super), at the expense of high-wage employers (NOT at the expense of the low-wage workers).

  4. P.S.: Here’s a potted version (a letter in the AFR on June 20, 2011):

    PAYROLL TAX RETHINK NEEDED

    To create jobs for Australia’s army of unemployed (Weekend Financial Review, June 18-19) without adding to inflationary pressure, we must reform the tax-transfer system so that employers who offer entry-level jobs are not slugged for payroll tax and superannuation contributions on top of the wage bill.

    For example, we could disaggregate payroll tax – that is, tax the employer on the wage or salary of each employee, applying a threshold to the individual wage or salary instead of the whole payroll. The States could do this voluntarily, or the Commonwealth could force them to do it on pain of losing their GST revenue.

    The Superannuation Guarantee (SG) isn’t classified as a tax because it isn’t paid to the Government. But in all other respects, our federally mandated, employer-funded 9% superannuation contribution is equivalent to a federally-FUNDED 9% contribution financed by a 9% federal payroll tax.

    We could make that description official by bringing the SG “on budget”. Then we could disaggregate the payroll tax and introduce a per-employee threshold. Employees above and below the threshold would continue to receive super contributions (although contributions would no longer need to be apportioned to earnings).

    For 2007-08 (the latest year for which I can get adequate data), a rate of 9.7% above a threshold of $52,000 per annum would have collected the same revenue as State/Territory payroll taxes, while a rate of 28.4% above the same threshold (or 21.5% above $41,600 per annum) would have collected the same revenue as the SG. These results are pessimistic not only because they are out of date, but also because they fail to allow for an obvious anti-avoidance measure, namely the pro-rating of the thresholds for part-time workers.

    The changes would be revenue-neutral and would collect the revenue from the same group of taxpayers, namely employers. Politically speaking, this should be very low-hanging fruit.

    Gavin R. Putland
    Melbourne, Vic

  5. So, there you go…. salaries growing at 4%+ each year… not only in mining, is it? and for a few years already… AU$ above parity … inflation above 3%… and do we still think Australia is competitive in any shape or form?

    Yes, I can hear them… all those international firms can’t wait to expand their operations in Australia. And all those tourists that can’t wait to spend their holidays here. And all those immigrants that can’t wait to buy our million dollars houses…

    Mining is not the issue here. High debt which drives and demands high inflation is. To eradicate inflation there only one solution: a recession.