Prime Minister Malcolm Turnbull has blamed low wage growth for the worst monthly drop in consumer spending since 2010.
Retail turnover in August declined for a second month in a row, according to official data released on Thursday, with the -0.6 per cent drop in trade the worst monthly performance in more than four years – putting economic growth at risk.
“While we’re seeing strong growth in employment, we’re yet to see stronger growth in wages, so people feel as though they’re not getting ahead,” Mr Turnbull told Neil Mitchell on 3AW radio on Friday.
“That’s why economic growth is so important.”
The Prime Minister said wages would naturally rise as unemployment falls. “It’s supply and demand. Phil Lowe, the governor of the Reserve Bank, was making this point just the other day,” he said.
Mr Turnbull also blamed higher energy bills, while some economists pointed the finger of blame at rising household debt and cooling house prices.
August retail trade slumped the most at ‘Newspaper and book retailing’, down -2.3 per cent; ‘Cafes, restaurants and catering services’, down -1.8 per cent; and at ‘Electrical and electronic goods retailing’, down -1.6 per cent.
Nowhere in Australia escaped, with retail sales falling in every state and territory, with New South Wales, Victoria and the ACT tied for worst performance at -0.8 per cent.
The link between low wage growth, low spending and low economic growth has been a growing area of concern in recent months.
Commonwealth Bank CEO Ian Narev said in a speech on Friday that wage growth was the “No.1 metric” that policymakers should be concerned about.
The reason experts are so concerned is that any drop in consumer spending from cash-poor workers could have big consequences for economic growth, as household consumption currently accounts for roughly 57 per cent of Australia’s economic growth.
The full impact of the August slump will be seen when the September quarter GDP figures are released. In the GDP figures for the June quarter, the share of economic growth flowing to wage earners fell to 51.3 per cent in trend terms, the lowest since 1964, while the profit share soared to 27.3 per cent, the highest since 2012.
Dr Richard Holden, an economist at the University of New South Wales, has previously warned The New Daily that a drop in consumer spending “goes round in a vicious cycle”.
“If you have more of a drop on consumer spending, you’re going to see a contraction on the business side. It flows straight into business investment and business expansion, and that has a multiplier effect,” Dr Holden said at the time.
Commonwealth Bank economist Gareth Aird has described the August retail report as a “shocker”.
“It’s not surprising to see such weak retail trade outcomes given household income growth is so soft. But two consecutive monthly falls look at odds with the recent strength in the labour market.”
Mr Aird also said mortgage interest payments are taking up a larger proportion of household income, acting as “a handbrake on consumer spending and the retail sector in general”.
The expected arrival of online giant Amazon, and the growth of online retail in general, is also putting pressure on retailers, he said.
Australian Retailers Association executive director Russell Zimmerman blamed increased energy costs, higher tax burdens and an inflexible wage system for the concerning result and called for government action to lift confidence.
JP Morgan economist Ben Jarman said further weakness in household consumption would put at risk the Reserve Bank’s forecasts for a return to economic growth of 3 per cent, from the current annual rate of 1.8 per cent.
“The consumption data challenge the RBA’s assertion that growth will move back above potential,” he said.
Labor leader Bill Shorten told a media conference on Friday that the misuse of labour hire contracts were a major contributing factor to Australia’s low wage growth.
– with AAP