Market Watch

Why there's little cheer in the latest wages and jobs data.

Jobs, jobs and more jobs were at the centre of what has been one of the most telling economic weeks of 2017.

We highlighted the employment numbers at the start of the week – employment has been one of the bright spots of the Australian economic landscape. Although Thursday's numbers were slightly soggy on a net basis, when added to the yearly figures it's more of an impressive read. Australia has added more than 340,000 jobs in 2017 with two months to go.

This year is fast catching up to 2005, when we saw approximately 357,000 jobs added. Considering December is impacted by the festive season, the November numbers will be key to reaching this milestone. It could be touch and go. All eyes on the December 15 release.

There has been an impressive increase in full-time employment during 2017. A further 24,300 full-time jobs were added in the month of October. With business confidence on the up, the sector is picking up staff for the years ahead.

Employment strength should be meet with excitement. The positive impact on the economy and investment are well known. However, Wednesday's wage growth index changed everything around the outlook for Australia's GDP and inflation forecasts. Employment might be rising, but wages are not. Check out the below chart for a comprehensive picture of wage stagnation.

In wages, we have just experienced 2 per cent growth year-on-year (YoY), which is off its record low from the previous quarter of 1.9 per cent YoY. However, the YoY figure has been bolstered by the public sector adding 2.4 per cent YoY.

Private sector wages have added only 1.9 per cent YoY. Adjusting for the inflation rate, that figure is whittled down to a paltry 0.1 per cent.

Private sector wages are clearly the bigger problem of the two, which the next chart focuses on. If we zoom into the private sector, and the underutilisation rate between 2015 and now, we can better see the breakdown of the relationship. Underutilisation is those wanting more hours.

Under normal conditions, you would expect wages to be much higher than current levels – what's going on?

Underutilisation figures reveal that employees want to work more. However, environmental impacts are clearly getting in the way (globalisation, technology, etc). And, despite increases in hours worked, this is not being translated to increases in average hourly earnings. Basically, people are working more for less, which raises concerns around job security.

Economically, the wage price index highlights that wage growth will become an inflation issue. Wages are a sizeable component of the overall inflation makeup and the downward trend is a concern. Wage growth impacts consumption and anaemic wages will hit consumption as households tighten the budget. Considering consumption makes up around 40 per cent of Australia's GDP, the Reserve Bank's forecasts are unlikely to be met anytime soon.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Join the Conversation...

There are comments posted so far.

If you'd like to join this conversation, please login or sign up here

Related Articles