Wages slowed after job market lull
Market watch top headlines
SYDNEY, Feb 20 AAP
February 20 2013, 12:58AM
A lull in the jobs market over the past couple of years is showing up in slower wages growth, clearing the way for a further round of interest rate cuts.
After growing as rapidly as three per cent a year in 2010, growth in the number of hours being worked in Australia stalled last year, falling below its level of the previous 12 months.
Annual declines in hours worked has been seen on only four previous occasions over the past 25 years.
The first was during the severe recession of the early 1990s.
The second was in 1996, and only briefly, after an inflation-wary Reserve Bank of Australia (RBA) had jacked the cash rate up by 2.75 percentage points in just five months in late 1994.
The third occasion was in 2000 and 2001.
The labour market was undermined then by a nasty combination of factors, including a share price slump, a world recession, and the new GST which derailed the housing industry and led the RBA into another bout of rate hikes as it fretted that the new tax might cause inflation to ratchet higher.
The fourth was in 2009, after the economy was slapped down by the global financial crisis (GFC) which came to a head the previous year.
The latest, the fifth, is the result of the winding back of fiscal stimulus, the strong exchange rate and the lingering effects of spending and investment habits from the GFC.
The wage price index produced by the Australian Bureau of Statistics (ABS) only extends back to 1997, but its behaviour confirms its sensitivity to demand for labour evident in the hours-worked data and other labour market indicators.
So, it should be no surprise that annual growth in wages slowed to 3.4 per cent over the year to the December quarter, from 3.6 per cent the year before and 3.9 per cent the year before that, according to data from the ABS on Wednesday.
This measure of annual wages growth had not been slower since the June quarter of 2010, when it was held back by the GFC and associated official freeze on minimum wage rates.
Before that, wages growth had not been so slow since the early 2000s, following the earlier stumble in the labour market.
And even that 3.4 per cent growth rate exaggerates the momentum in wages.
In the latest two quarters, wages growth has slowed even further, to 3.0 per cent overall over the half year, expressed as an annualised rate.
Wages growth will pick up again, eventually, once the labour market gains a bit of a head of steam.
But that won't be for a while - it will first need the economy to pick up speed, something for which there is only tentative and patchy evidence so far.
Meanwhile, the latest labour force figures show the month-to-month trend in hours worked is dead flat. So, tepid wages growth will be with us until late this year at least.
So, if the RBA sees a need to cut interest rates further there should be no reason for it to hold off on account of fears of a wage-driven acceleration in consumer price inflation.
By Garry Shilson-Josling, AAP Economist