Whatever drives the economy’s rebalancing in the months ahead, it’s unlikely to be spendthrift wage-slaves.
The average wage rate in the third quarter of 2014 was only 2.6 per cent higher than a year earlier, figures from the Australian Bureau of Statistics on Wednesday showed.
That was as slow as wages growth has been in the 17-year history of the figures.
Last week’s official jobs figures showed the number of hours worked in the quarter was only 0.8 per cent higher than a year before.
That suggests annual growth in total wages earned ought to be a bit over three per cent.
While the annual data isn’t available yet, the latest figures from the national accounts, taking us up to June 2014, show annual growth in wage and salary income was exactly three per cent.
And that is slow.
It’s less than half the average for the low-inflation era the Reserve Bank of Australia ushered in from 1993.
The wages and hours-worked figures for the past few months show no sign of an acceleration in wage income.
At best, it’s still struggling to manage half the usual pace.
But consumer spending isn’t doing too badly despite that.
The broadest measure of consumer spending, the estimate of household final consumption spending from the national accounts, shows annual growth over the year to June was a relatively normal-looking five per cent.
The previous 20-year average was six per cent. So, the slowdown has been much less than the slowdown in wage income might suggest.
Part of the reason for that is that households tend to keep their spending relatively steady as their income growth waxes and wanes.
But a big part of the equation also is home building, which often drives fluctuations in consumer spending.
During the past year, dollars spent on housing construction, including alterations and additions to existing homes, grew by 12 per cent. That compares with a long-run average growth rate of six per cent.
To put it simply, households are spending more because they’re building and moving into new homes, not because they’re earning a lot more.
And that’s a potential problem for policymakers hoping to encourage consumers to push economic growth along as the mining investment boom fades – the transition some economists have rather hopefully labelled “the rebalancing”.
That’s because there are signs that housing construction may be in the process of topping out.
The trend in home building approvals peaked in late 2013, and the housing price rises that have pushed the industry along have slowed in recent weeks amid threats of regulatory controls designed to curb lending to investors.
If housing construction does hit the wall, then consumer spending will suffer and the rebalancing will turn out to be even more drawn out and messy than it’s been so far.
