Wages growing at a faster rate than household inflation: Craig James

Wages growing at a faster rate than household inflation: Craig James
Wages growing at a faster rate than household inflation: Craig James

GUEST OBSERVER

The weekly ANZ/Roy Morgan consumer confidence rating eased from 112.4 to a 5-week low of 111.8 in the week to June 25.

Engineering work lifts: Work done rose by 2.8 percent in the March quarter to $20.3 billion.

Outstanding work: The value of engineering work still to be completed stood at a 71⁄2-year low of $59.8 billion at the end of March.

Consumer confidence data is important for retailers.

The data on engineering construction is important for builders, building material and construction-dependent companies.

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Wages growing at a faster rate than household inflation: Craig James

What does it all mean?

Consumer confidence remains just OK. Most Aussie consumers are still grappling with the new reality that annual wage growth will now be closer to 2 percent rather than 3-4 percent as in the past.

Still, what is lost on most is the fact that wages are growing at a faster rate than household inflation. And the job market continues to improve with the jobless rate at 4-year lows.

While business confidence is near 7-year highs, consumer confidence is merely trending sideways. The hope is that with profits at record highs and real unit labour costs falling, more jobs will be created, thus leading to a tighter job market and serving to push wages higher.

The mining construction boom continues to unwind. The value of outstanding engineering work has fallen to 71⁄2- year lows around $60 billion, but the value of work yet to be done has scope to fall further to get to the levels existing before the mining boom commenced.

The new economic driver in the next few years will be broader economic and social infrastructure building, especially that progressed by state and federal governments.

What do the figures show?

Consumer sentiment

The weekly ANZ/Roy Morgan consumer confidence rating eased from 112.4 to 111.8 in the week to June 25. Confidence is down 4.3 percent over the year and below the average of 113.1 since 2014.

Three of the five components of the index fell in the latest week:

  • The estimate of family finances compared with a year ago was unchanged at a reading of zero;
  • The estimate of family finances over the next year was down from +23 to +21;
  • Economic conditions over the next 12 months was up from -6 to -3;
  • Economic conditions over the next 5 years was down from +4 to +3;
  • The measure of whether it was a good time to buy a major household item was down from +41 to +38:

Engineering construction

Engineering construction work completed in the March quarter (activities like roads, bridges, pipelines and railways) rose by 2.8 percent in real terms. 

Work done was down 12.5 percent on a year ago. But while work done for the private sector was down 22.4 percent over the year, work done for the public sector was up by 10.2 percent.

The value of engineering work yet to be done stood at $59.8 billion at the end of March with private sector work standing at $56 billion and public sector work at $3.8 billion. 

While outstanding work is at 71⁄2-year lows, the value of the projects is still double the level that prevailed a decade ago in December 2006, just before the Chinese-driven mining construction boom. 

Characteristics of Exporters 

The total number of exporters of goods and/or services in 2015/16 was 53,350, an increase of 2,454 (5 percent) from 2014/15.

The number of goods exporters increased by 2,611 (5 per cent) and the number of services exporters decreased by 136 (-4 percent).

The increase in the number of exporters was across the board, except for large goods exporters (over $100m) and services exporters.

The number of goods exporters increased in each of the main industry divisions, except for Mining. What is the importance of the economic data?

The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

Wages growing at a faster rate than household inflation: Craig James

The Australian Bureau of Statistics provides detailed estimates on Engineering Construction each quarter. The data is valuable in gauging activity levels across the sector. 

The Australian Bureau of Statistics provides insights on Australian exporters each year to highlight trends. What are the implications for interest rates and investors?

CommSec expects the Reserve Bank to remain on the interest rate sidelines for an extended period. The mining boom is over, but home building is at record levels and public infrastructure construction is about to ramp up. The economy is poised to enter a new phase.

Consumers aren’t super-optimistic, but neither are they super-pessimistic. Basically they are just taking stock of the changing landscape. Unfortunately political wrangling isn’t helping to boost consumer sentiment, despite some favourable influences such as strong job growth and lower petrol prices. 

 

Craig James is the chief economist at CommSec. 

Craig James

Craig James

Craig James is the Chief Economist at CommSec, interpreting ‘big picture’ economic and financial trends.

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Wages Growth Consumer Confidence

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