The Macro Landscape – Wages are slowing from peak levels Key Highlights
by
Philip Brown, Head of Research, FIIG Securities | Nov 14, 2024
- Wage growth was slightly under expectations, which had been for +0.9% and +3.6%, printing at +0.8% on the quarter and +3.5% on the year. The overall tone is very much in line with previous developing thematics.
- The consumer and business confidence surveys earlier this week showed a big boost that seemed directly linked to a broad fall in inflation, with businesses happy to have labour costs falling. Consumers, for what it's worth, don't seem to be demanding wage rises as such, but are happy enough with stability: neither prices nor wages rising quickly.
- The details of the report are that private sector wage growth dropped sharply, with public sector wages holding up a touch more. The contribution to the change was dominated by the healthcare sector. We'll do some more work here, but this is likely to be either NDIS, or the Victorian nurses agreement, or both. But the underlying point of wage growth only coming when directly mandated by the government is pretty clear. Wages growth is coming from the public sector and from the Fair Work Commission.
Source: ABS
- As long as governments are happy to keep paying these large changes they'll be clear in the data, but the tone of the political discussion seems to be changing. (Should Dutton win next year, then we doubt that the NDIS will be providing as many new jobs or as high a salary as it does now.) The RBA is of the belief that the labour market is still too tight for comfort. There are some measures that support this observation: the unemployment rate is low, as it the underemployment rate. But those are simultaneously good things; we want them to be lower if we can. The reason we don't want unemployment to be "too low" is because if unemployment is too low, then you risk a spike in wage growth. The wages data yesterday (and the business conditions data the day before) both suggest that the labour market is seemingly not as tight as feared because wages outcomes are not problematic. The only missing piece for this is productivity. As long as productivity isn't too weak, the arguments for leaving the cash rate high are starting to evaporate.
- The timing is still not fully clear, but there's plenty of reasons to assume we get to a rate cut in either February or May next year.