Wages are growing at their slowest pace in 22 years as the coronavirus impact on the labour market spreads to pay rates.
- Wages increased just 1.8 per cent over the year to June 30
- Private sector wages have borne the brunt of the wage slowdown
- Consumer confidence has collapsed again, after the Victorian Government imposed stage 4 restrictions on Melbourne
Wages growth has declined to an annual pace of just 1.8 per cent, from 2.4 per cent in March — the slowest pace since records began in 1997.
The bulk of the slowdown in wages has occurred in the private sector, where individual agreements, which make it easier for employers to cut wages quickly, have proliferated in recent years.
“The rise of the informal sector has increased Australia’s wages sensitivity to economic cycles (as we saw during the mining boom and the global financial crisis) and so an extreme economic event now produces a more extreme wage outcome,” Westpac economist Justin Smirk said.
The Bureau of Statistics data is for the June quarter (covering April, May and June).
It is the first full period in which the COVID-19 social and business restrictions have been captured in the ABS’s wage price index series.
The data was collected in mid-May so it has captured the impact of the initial virus outbreak and lockdown on wages, but not the impact of Victoria’s recent stage 4 restrictions.
JobKeeper and payroll tax changes have had no impact on the data either, because they fell outside the scope of the survey.
However, the ABS said 1 per cent of jobs in the June quarter saw wage reductions of around 12 per cent, which is historically high.
Wage cuts hit higher paid jobs
Nationally, private sector wage growth fell to an annual rate of 1.7 per cent in the June quarter, from 2.1 per cent, driven principally by a number of large wage reductions across higher paid jobs (such as lawyers, accountants, marketers and financiers) and senior executive positions.
Public sector wage growth was stronger, which helped to keep inflation positive, but it still declined to 2.1 per cent, down from 2.4 per cent in the March quarter.
“Public sector wages will slow from here given that past agreements to lift public sector wages in some states have now been finalised,” AMP Capital senior economist Diana Mousina said.
By industry, the largest wage declines occurred in the June quarter in “other services” (-0.9 per cent), construction (-0.5 per cent), professional, scientific and technical services (-0.5 per cent), rental and hiring (-0.1 per cent), accommodation and food services (-0.1 per cent) and wholesale trade (-0.1 per cent).
Wages rose the most in utilities (0.6 per cent), education (0.5 per cent) and mining (0.5 per cent).
Wages growth will get worse
Economists say such a rapid slowdown in wages growth was surprising, but worse is likely to come.
“The weaker starting point for wages comes ahead of the cyclical impact of rising slack, lower confidence, and heightened uncertainty, coupled with the persistent headwind of low productivity,” Su-Lin Ong, Royal Bank of Canada’s head Australian strategist, said.
“These factors will take longer to play out but will continue to keep downward pressure on wages growth over the next 12 months, with annual wages growth moving towards 1 per cent and making a return to the Reserve Bank’s inflation target increasingly elusive.”
Dr Sarah Hunter, the chief economist for BIS Oxford Economics agreed.
“Looking ahead, wages growth is likely to remain very weak given the collapse in employment and depressed economic environment,” she said.
“And with many state governments announcing plans for wage freezes in the face of budget pressures and the pace of inflation falling back sharply (which will feed through to wage agreements), momentum in public sector wages is also likely to soften in the near term.”
Sentiment collapses on ‘air of panic’
Consumer sentiment also collapsed again as Victoria’s stage 4 lockdowns in Melbourne spread fear throughout households on Australia’s eastern seaboard.
The latest Westpac-Melbourne Institute consumer sentiment survey fell 9.5 per cent in August, and Westpac’s economists said the scale of the fall was a “major surprise.”
The consumer sentiment index is back near the extreme lows recorded in April when Australia was in the early stages of a national lockdown.
Surprisingly, sentiment is now worse in New South Wales than it is in Victoria.
Victorian sentiment has fallen 8.3 per cent this month, to register 78 index points.
But sentiment has plummeted in New South Wales by 15.5 per cent to 77.8 index points.
Even in Queensland, where coronavirus case numbers have been tiny, sentiment fell 8.1 per cent this month to 79.1 index points.
When the index level is 100 or more it means the level of optimism is outweighing pessimism.
The index in South Australia fell by 5.8 per cent to 81.8 points, and Western Australia decreased slightly by 1.5 per cent to 85.9 points.
“For now, we feel the August sentiment read should be treated with more caution than usual,” Westpac chief economist Bill Evans said.
“Consumers are clearly fearful of the COVID threat and uncertain about how it will play out.
“Victoria’s progress in containing the virus with its current heavy lockdown policies will be much clearer by the first week in September when we conduct the next survey.”