Miserly wages growth as economic confidence slips

Wages growth had only a modest pick-up in the first three months of 2021, as last week’s big spending budget failed to sustain the recent strength of consumer confidence.

The Australian Bureau of Statistics said the wage price index for the March quarter – a key gauge used by the Reserve Bank and Treasury to measure wages growth – rose 0.6 per cent.

This was slightly higher than the 0.5 per cent rise expected by economists, but still left the annual rate at 1.5 per cent – at least half the rate the Reserve Bank wants to see to return inflation to some normality.

Private sector wages grew 0.6 per cent in the quarter, while those in the public sector rose 0.4 per cent.

The minutes of the RBA’s May 4 board meeting released on Tuesday reiterated the cash rate won’t rise until inflation is sustainably between two and three per cent, which will need wage growth of above three per cent.

Last week’s budget forecasts wages only growing by 2.75 per cent by 2024/25 after either trailing or being flat to inflation before then.

Meanwhile, the Westpac-Melbourne Institute consumer sentiment index showed confidence dropping 4.8 per cent in May, despite last week’s budget spending almost $100 billion over the next four years.

“With that scale of stimulus measures the government might have expected a lift in sentiment following the announcement of the budget,” Westpac chief economist Bill Evans said.

Mr Evans said this may reflect the absence of major surprises with many initiatives leaked prior to budget night.

“Perhaps the budget would have been even better received if the government had announced some surprise positive initiatives on the night that were targeted at households,” he said.

Just one in five consumers expects this year’s budget will improve their finances over the next 12 months.

However, there has only been one better response in the 11 years the survey has asked a specific budget question.

That followed the equally big-spending budget in 2020, with a survey showing just over one in four consumers expected to be better off.

The decline in confidence – a pointer to future retail spending – does follow a spike to the highest level since 2010 in April and an 11 per cent increase over the previous three months.

Still, there was positive news for the employment market with the National Skills Commission’s final vacancy report for April confirming a 3.3 per cent increase in skilled job advertisements posted on the internet.

This was the 12th consecutive monthly rise and a 44.8 per cent increase from pre-COVID-19 levels.

Job ads rose across all eight occupational groups monitored by the commission in the month, although were concentrated in NSW and Victoria with all other states and territories apart from Tasmania recording a fall in recruitment activity.


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