It was headline news yesterday at the AFR:
Australia Inc. employers have delivered workers the equal-best quarter of wages growing in 3 1/2 years, offering a glimmer of hope that a long slide in income growth is coming to an end.
In news likely to be welcomed by the Reserve Bank of Australia, which says it has little scope to begin normalising ultra-easy monetary policy until wage growth starts to stoke inflation, paypackets rose 1.2 per cent in the June quarter.
The gain – which matches the strongest quarter since the three months through December 2013 – was driven by strong gains in administration, healthcare, and professional services jobs.
Separate Australian Bureau of Statistics data showed the profit picture for the June quarter was mixed – with profits falling 4.5 per cent after five months of strong growth, as commodity prices eased.
Robust income growth if continued will help keep the household sector spending, boosting consumption that accounts for more than 60 per cent of the economy, and supporting employment growth.
Which is why you shouldn’t tead the old rag, via Deutsche:
Did wages rise 1.2% in Q2? On wages, there appears to be a little ambiguity around what exactly the 1.2% qoq increase in wages and salaries (as reported in yesterday’s business indicators release) actually means. What it means is that the total amount of wages and salaries paid to workers rose by 1.2% in the June quarter.
It does not mean that wages rose 1.2%. Rather it means that with employment growth of 1.0% in the quarter (we know this from the labour force data), the implied wages (average earnings) increase is ~0.2% (i.e. 1.0% employment growth plus 0.2% average earnings growth equals 1.2% growth in wages and salaries). Quarterly growth of 0.2% in average earnings annualizes to less than 1%. That’s a weak wages outcome.
To be sure tomorrow’s national accounts will provide an actual (rather than an implied via a few different series) average earnings number. We doubt it will show a quarterly outturn anywhere near 1.2%. Indeed we have it at 0.1% qoq. That would lift the annual increase from 0.0% in Q1 to 0.3% in Q2 – pretty dismal against the backdrop of either history, or the current headline inflation rate of 1.9%.
Boom!
