Another day, another report spelling bad news for wages growth.
Before the latest round of wage figures to be released on Wednesday morning, Commonwealth Bank painted a grim picture of household spending on Tuesday.
The bank’s spending intentions data shows consumers will continue using last year’s rate cuts and tax rebates to pay off debt over the coming months – disappointing the government’s distant hopes of a consumer-led recovery.
Retail spending intentions remained negative in January, suggesting more store closures are just around the corner.
And the travel and education industries recorded a sizeable fall in spending intentions on the back of the bushfires and coronavirus outbreak.
“Google trends, for example, reveals accommodation searches in fire-affected areas on the north and south coast of NSW have fallen away,” Commonwealth Bank senior economist Michael Blythe wrote in a note.
Given consumer spending accounts for roughly 60 per cent of GDP, it’s almost impossible for the economy to fire on all cylinders when consumers shut their wallets.
And so weak spending intentions suggest wages won’t pick up any time soon.
“Low inflation creeps into low wage expectations on the one hand and, of course, that slack that’s still there in the labour market makes it difficult for wage rises to accelerate much,” Mr Blythe told The New Daily.
“What we’ve seen is a fair amount of stimulus applied to households which, in some ways, compensates for the lack of wages growth.
“But what has happened, of course, is that that stimulus has either ended up in savings [accounts] or it’s ended up [paying off debt].”
Although conceding it was a good thing for households to reduce their debt burden, Mr Blythe said the economy, which last year recorded its lowest growth rate since the global financial crisis, “could do with a boost right now”.
“The government’s balance sheet is in pretty good shape, so we need to use that,” Mr Blythe said, echoing recent calls for more government investment from Reserve Bank Governor Philip Lowe.
CBA’s report contained a sprinkle of good news.
The rapid turnaround in the housing market has made people more likely to buy a car or a home – suggesting the “positive wealth effect” of rising house prices could give a boost to struggling car dealerships and support jobs creation in the construction industry. (That’s not to say there aren’t major downsides to rapidly rising house prices.)
Unfortunately, neither positives will be enough to lift wages, though.
The consensus opinion among market economists is that Wednesday’s wage price index will show salaries growing at a modest 0.5 per cent over the December quarter and 2.2 per cent over the year – well below the historical average of 3 to 4 per cent per annum.
Westpac economists said “the slight drift higher in EBAs last year, the 3 per cent rise in minimum wages and a marginal tightening in labour markets through 2017-18” would be offset by the slowdown in job creation at the end of 2019.
They tipped quarterly wages growth of 0.5 per cent, while economists at ANZ said they “do not expect a material pick up in wage growth any time soon”.