Gareth Aird, head of Australian economics at CBA, has released an excellent new report showing how rising wages has offset the reduction in emergency income support after JobKeeper and JobSeeker were cut at the end of September:
Key Points:
Growth in household income has not stepped down since the JobKeeper and JobSeeker payments were tapered indicating so far a seamless transition away from public support as the economy improves.
Growth in salary and wages paid into CBA bank accounts has lifted over Q4 20 reflecting growth in employment, hours worked and the personal income tax cuts.
The number of people receiving JobSeeker is declining as the labour market improves.
The average total savings balance per household continues to rise sharply and the huge amount of savings accrued by the household sector will support household consumption in 2021.
We expect a fall in GDP of 3.3% in 2020 to be followed by an increase in GDP of 4.2% in 2021 and 3.8% in 2022.
We expect the unemployment rate to be 5.75% at end-2021 and 5.0% at end-2022.
Annual growth in wages and salaries paid into CBA bank accounts has accelerated over the past month (latest w/e 20 November). The positive impact of a lift in employment and hours worked coupled with personal income tax cuts has more than offset the reduction in JobKeeper payments.
Growth in government benefit payments has eased primarily because: (i)the number of people receiving the JobSeeker payment has declined; and (ii)the ‘coronavirus supplement’ was reduced from $A550 per fortnight to $A250 per fortnight in Q4 20.
Overall growth in wages & salaries paid plus government payments has been tracking around 10%/yr over Q4 20 –still well above pre-COVID levels. Overall growth in household income over 2020 will be very strong.
Our 4wk smoothed calculation on wages & salaries paid plus government benefits highlights the so far seamless transition from public support towards market driven income. There is still a long way to go but so far settings appear well calibrated.
The number of people receiving JobSeeker is coming down across the board. Unsurprisingly Victoria has had the largest proportionate increase in the number of people receiving JobSeeker across the states.
Most of the smaller states along with the NT have had smaller proportionate increases in the number of people receiving JobSeeker. The ACT is the exception where there was a big increase in the proportion of people receiving JobSeeker.
There has been a much bigger reduction in the amount of JobSeeker paid into CBA bank accounts over Q4 20 relative to the decline in the number of people receiving JobSeeker. Someone receiving JobSeeker can now earn up to $A300 per fortnight and still receive JobSeeker (previously it was $A106 or $A143 per fortnight depending on age).
The disparity between household income growth and spending has generated a massive increase in savings. The CBA average total savings balance per household, including home lending related savings and transaction or savings accounts, was up 15.3%/yr at October 2020. The early withdrawal of super has also contributed to the lift in the stock of savings.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
