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Wage growth, or lack thereof, remains a major concern in Australia.

According to data released by the ABS today, hourly wage growth excluding bonuses rose 0.48% in the September quarter, missing forecasts for a larger increase of 0.7%.

As a result of the soft quarterly result, annual wage growth also came up short, rising by 2.01%, below the 2.2% level expected.

While annual wage growth accelerated from 1.94% in the June quarter, suggesting that wage pressures are now starting to pick up following months of strong employment growth, the problem with today’s result was that it was driven by a one-off factor.

A large 3.3% increase in Australia’s minimum wage rate at the start of July was expected to add around 0.2 percentage points to the quarterly growth rate.

However, even with this larger-than-usual increase, the figure was unchanged from the prior quarter.

That’s very concerning, suggesting that without this temporary factor, quarterly growth would have been somewhere in the region of 0.3%, potentially the lowest level on record.

For a central bank expecting a gradual lift in wage pressures to help boost household consumption, GDP growth and inflation in the years ahead, this is would be unwelcome news for the Reserve Bank of Australia (RBA), especially given how strong employment growth has been this year.

Even with tightening labour market conditions, wage growth is failing to respond. Indeed, rather than help boost confidence that wage growth has now bottomed, today’s report creates doubts as to whether it has.

It was an incredibly weak result, masked by the minimum wage increase.

Financial markets certainly thought so, driving down the Aussie dollar to fresh four-month lows. Bonds also strengthened as traders scaled back expectations for an increase in official interest rates.

This is the type of reaction that’s rarely been seen to this release before.

Now that the markets have had their say, let’s see what economists have made of it all.

Should we be concerned about the outlook for the economy from today’s result, or is this just a pothole on what is an otherwise gradual recovery?

Tom Kennedy, JP Morgan

The bottom line from today’s print is that Australia’s underlying wage impulse appears even more benign than we had anticipated, with weakness in broader dynamics offsetting the one-off impulse from the minimum wage increase. The RBA has previously noted that up to 40% of the labour force would benefit from changes to the minimum wage rate, so we suspect that today’s number would come as an unwelcome surprise to Bank officials. This is particularly so in regards to household balance sheets, as it makes the RBA’s desired stabilisation in the household debt-to-income ratio even hard to achieve. And with overall wage growth settling around 2% year-on-year, growth in real wages is likely to remain flat for a while yet, another unwelcome headwind to the consumption outlook.

Felicity Emmett, ANZ Bank

Although we are surprised by the weakness evident in today’s numbers, we continue to expect wage growth to creep higher over the coming years. Spare capacity in the labour market is gradually being eroded, job insecurity has fallen, and businesses are reporting some pockets of difficulty in finding suitable labour. Given our forecast for only a gradual reduction in unemployment and underemployment, the lift in wages is likely to be particularly gentle. That said, a gradual acceleration in wages was an important element in our call for rate hikes next year. Today’s numbers challenge that call and suggest that the risk is that rate hikes come later than we currently expect. The RBA would also have been disappointed by the today’s weak results. The Bank has expressed confidence on a number of occasions that wage growth would improve, but that confidence will be tested by the weakness apparent in these numbers. Ongoing very-low wage growth and its implications for both the consumption and inflation trajectory suggest that monetary policy is likely to remain stimulatory for some time.

John Peters, Commonwealth Bank

Looking ahead, it is hard to identify where intensifying broad wage pressures and outcomes will emerge, despite a strengthening national economic growth pulse. Indeed, wages growth is likely to continue to be hamstrung by considerable spare capacity in the labour market, a lower level of job mobility, major structural change in the economy and increased competitive pressures from the internationalisation of services trade. Today’s lower-than-expected and very tame Q3 wages growth outcome bolsters our long-held view that the RBA will remain on the sidelines for all of 2017 and until late 2018 at the earliest, before moving to lift the current cash rate of 1.5%. The RBA has made crystal clear on numerous recent occasions via the latest Statement on Monetary Policy (SoMP), RBA Board meeting minutes and senior official speeches that the central bank is in no hurry to reach for the rate hike lever with inflation and wages growth so feeble.

Paul Dales, Capital Economics

It is obviously a good thing that wage growth has risen from the record low of 1.9% recorded in the previous four quarters to 2.0% in the third quarter. This could go down in history as the point that wage growth finally turned upwards after the GFC. However, this rise was entirely due to the decision by the Fair Work Commission to raise the minimum wage by 3.3% this July, which was the largest rise since 2011, rather than a sign that the tighter labour market is forcing firms to raise wages at a faster rate. So the actual 0.5% quarter-on-quarter and 2.0% year-on-year rises imply that wage growth for employees not directly affected by the minimum wage may have slowed. At some point in the next year or two, the recent strengthening in the labour market should boost wage growth for all employees. But the spare capacity in the labour market will be used up only gradually and the bigger, longer-term forces of globalisation and technological innovation will probably prevent wage growth from rising to 2.5% until the end of 2019 or perhaps even later. The takeaway is that there is still no meaningful wage inflation in Australia.

Tapas Strickland, National Australia Bank

Wages growth was well below expectations with the increase in the minimum wage failing to boost wages growth in aggregate. This also raises the question of whether wages growth outside of the minimum wage increase has weakened. We do not think so. Wages growth in aggregate appears stable having averaged at 0.5% over the past eight quarters, but is showing little signs of a pickup despite strong employment growth. With underlying inflation running at around 1.9% year-on-year, there continues to be virtually zero real wages growth in Australia — a phenomenon that has existed since December 2013. A lack of real wages growth has the potential to constrain household consumption, and some notion of this might be starting to be evident in recently weak retail sales. For the RBA, today’s data will be a disappointment. The Bank had expected the minimum wage to contribute 0.2% points to Q3 wages growth, but this this did not occur with wages growth steady at 0.5%. The lack of a pick-up will reinforce the uncertainty the RBA already has about “how much wage growth will pick up in response to improved labour market conditions and the associated reduction in spare capacity”. Given the uncertainty, the RBA will likely want to see an initial pick-up in wages growth to give it confidence that wages growth and inflation will pick-up as the labour market tightens. The RBA (and the market) will no doubt be also guided by how global unemployment rates translate into wages growth.

Su-Lin Ong, Royal Bank of Canada

Assuming the bulk of the legislated minimum wage increase occurred in Q3, today’s WPI was particularly weak and we make 3 observations. Firstly, the data are probably consistent with the considerable slack in the labour market despite the step up in the pace of employment generation in 2017. The rate of underemployment has edged lower but is still not far from its historic high. Looking forward into 2018, we are less sure that monthly job gains will continue at the pace of 2017 given the outsized increases in health and social assistance jobs. Considerable excess capacity is set to continue next year. Secondly, coupled with the global trend in wages, including those economies with unemployment rates near/below NAIRU and far less underemployment, there is little to suggest AU wages growth will pick up much in 2018 and into 2019. Thirdly, despite the RBA’s optimism that there are pockets of firmer wages growth emerging from their liaison, today’s data are likely to rattle their confidence somewhat. As we have been highlighting for some time, we think the suite of labour market indicators have become more important in policy deliberations and will be key in determining when its policy bias shifts. While the Governor has suggested that the next move is probably up, for the RBA to think about policy normalisation, it will need to have greater confidence that wages growth and inflation are eventually heading higher. Today’s data does not fall on that side of the ledger and, indeed, hint at some downside risk to their recent downwardly revised inflation forecasts over the medium term. We remain with our central case view for the cash rate to remain at 1.5% for an extended period throughout 2018.

Callam Pickering, Indeed

Another quarter and another set of disappointing wage figures for Australia. Although other measures of the labour market have improved, most notably employment growth, wage growth remain persistently low and continues to put pressure on household budgets. Wage growth remains the key for the Australian economy. It’s the key for monetary policy, the key for inflation, and the key for improved retail spending. Stronger business conditions and lower unemployment should, in time, lead to higher wage growth. But there remains a high degree of slack in the labour market and that keep wage growth relatively low for the foreseeable future. In the current environment, low wage growth points to weak inflation and makes it difficult for the Reserve Bank to justify higher interest rates. That, at the very least, offers some small comfort for households.

Simon Murray, Westpac

As has been the case for some time, subdued wage growth is reflecting slack in the labour market. However the solid job gains through Q2 and Q3 have seen the unemployment rate drop to 5.5%. That is still above estimates of full employment of around 5.0%, and there is also additional slack of those who are employed but would like more hours. Yet coming quarters will prove a test as to whether wages will respond to the tighter labour market. Evidence from other developed economies that are at or close to full employment has showed a fairly muted wages response. This could be because of ongoing structural factors weighing on wages growth such as globalisation, technological change, and the behavioural effect that has on workers who are concerned about job security. So, it would appear that the lift from the minimum wage was offset by softness in broader wages growth. We estimate that wage growth may have been 0.3-0.4% without the minimum wage effect. This indicates a weaker starting point for wages, with the debate centring on how it picks up from here. We see the risk that wages growth remains weak, while the RBA is more optimistic, looking for a gradual pick-up.

George Tharenou, UBS

This print suggests that underlying wage pressure likely eased further over the quarter despite gains in some minimum wage sectors. Excluding the minimum wage gain it is likely that underlying wage pressure declined further, to a new record low. While the WPI has now troughed, continued weakness in Enterprise Bargaining Agreements (EBAs) imply limited upward pressure on wages going forward despite clearly booming jobs and record business conditions. While we continue to expect some additional positive spillover from the minimum wage increase in coming quarters, today’s data clearly suggests the increase ahead is still likely to disappoint the hawks/bulls, and the RBA.

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