The increase in government benefit payments over the past month has been bigger than the fall in wages and salaries paid.
The shock to spending in the economy will be a lot bigger than the shock to household income.
Fiscal stimulus is clearly supporting the household sector from an income perspective.
The April CBA Flash PMIs capture the plunge in economic activity to date as a result of the COVID-19 pandemic. And the spending shock underway in the economy right now is being picked up well by our CBA credit and debit card data. But analysis from payments into CBA bank accounts paints a very different picture with regards to the impact that the enforced shutdown is having on household income.
Our data indicates that at an aggregate level the reduction in household income from job losses to date has been more than offset by an increase in government benefit payments. Indeed, the annual growth rate in our partial read on household income that comprises wages and salaries paid plus government benefits paid has risen over April. This note discusses the details.
Wages and salaries paid
Our wages and salaries data captures all wages and salaries paid into CBA bank accounts. In essence it is picking up changes in the level of employment, wages growth and hours worked. It indicates that total wages and salaries were running at ~5%/yr over the early part of 2020 (very similar to the national accounts measure of compensation of employees which was 4.8%/yr in Q4 19). That rate of growth dropped sharply by mid-April to be down ~3%/yr, but has since recovered to sit flat over the year. We suspect that there is a bit of ‘noise’ in the data because of the timing of Easter.
Included in wages and salaries paid will be people who have lost their jobs but have continued to receive some form of payment from their employer due to their contractual arrangements (e.g. 4 weeks paid notice on termination, leave paid out etc). So there will be a lag between job losses and the full impact on the total wages and salaries bill. Not withstanding, our data gives us an early guide on what’s happening from an employee earnings perspective. Note that going forward JobKeeper payments, which are not yet flowing, will be captured as salary and wages in our data because JobKeeper is paid to employees via their employers.
Government benefits paid
Government benefits paid into CBA bank accounts havesurged over the past month. There has been a ~50% increase in the number of bank accounts receiving JobSeeker. And the first tranche of the $A750 cash payments to 6.5million Australians has been paid. The net result has seen total government benefits paid rise by ~60%/yr as at late April. This does not take into account the doubling in JobSeeker which takes effect from 27 April.
Our partial read on household income
Combining wages and salaries paid into CBA bank accounts with government benefits also paid into CBA bank accounts gives us a partial read on household income (it excludes rents, interest earned, dividends and a few other things). Our data indicates that on this measure alone the size of the increase in government benefits paid has been bigger than the drop in wages and salaries paid to date. The net result has seen growth in household income rise.
Our data highlights the profound impact that fiscal stimulus has on the household sector. As we have argued previously, monetary and fiscal stimulus can’t boost spending in the economy on a range of goods and services when the business that produce them are not open. But fiscal stimulus can help to plug the gap in household income that is a natural consequence of job losses. Our data indicates that the savings rate will surge over Q2 20 as the shock to spending dwarfs the shock to income.
