The week that was
Labour costs dominated the economic news flow this week and both indicators confirmed wages growth remains weak, but a little less so than a year ago.
The Wage Price Index rose 0.6 per cent in the December quarter to be up just 2.1 per cent in the year. Annual WPI growth has edged up from a record low 1.9 per cent in early 2017. That said, this measure suggests that businesses are able to maintain solid profit growth without the need to lift prices aggressively to cover rising unit labour costs. In other words, the WPI fits with a scenario of ongoing low inflation.
The Average Weekly Earnings data, which reflect the actual dollars and cents that go into worker’s pay packets, painted a less downbeat (as opposed to outright upbeat) picture for wages. Total AWE rose by 2.4 per cent over the past year, to be a smidgen above the 1.9 per cent inflation rate. This is not particularly strong real wages growth and there remains a squeeze on real incomes which is a threat to the economy given that household consumption spending makes up over half of GDP. With soft AWE growth (see second chart), being accompanied by householders having a reduced appetite to take on more debt or to further run down savings, the outlook for retailers in 2018 remains problematic.
The week ahead
The top tier economic data continues to roll out. Next week the market mover will be the private new capital expenditure survey, business investment in other words. After years of sharp declines where investment as a share of GDP fell to a 25 year low, there was a bottoming out around the middle of 2017.
The business investment numbers are forecast to confirm a further moderate pick up in the December quarter which will be an important input into the GDP result which is published in early March. Perhaps more important will be the expectations for business investment out to 2018-19 where firms indicate their expected investment spending. While the prior survey was problematic on the investment outlook, the market is expecting a more upbeat view for investment in the remainder of 2017-18 and into 2018-19.