The week that was & the week ahead

The week that was      

There two charts for the week that was. One an up-beat business survey, the other a down-beat consumer sentiment survey. Something for everyone it seems, but it suggests the overall economy is somewhere between strong and weak. Muddling, in other words.

There was more positive news with the NAB business survey confirming a solid level of business confidence and conditions. Solid profits, employment plans and some tightening in capacity suggest the business sector is doing well. Low interest rates are no doubt feeding into more favourable cash flows and the ongoing strength in construction, both residential and non-residential is lifting activity.

Consumers, in contrast, remain gloomy. It is now nine straight months where pessimists have outnumbered optimisms and this is the longest run of net pessimism since the global crisis in 2008. It appears the ongoing weakness in wages is a major factor behind the consumer gloom.

170811 Business Conditions Index Source Commsec

Source: Commsec

170811 Consumer Sentiment Index Source Westpac

Source: Westpac

The week ahead

The wages data will be vital for an assessment of both inflation pressures (or lack thereof), household income growth and the extent to which consumer spending can pick up from its current sluggishness. Wages growth has been tracking at record lows driven by global competitive pressures and a slack local labour market which is due to ongoing economic underperformance.

The weakness in wages growth has been a factor undermining household consumption spending and this is likely to remain a key issue for policy makers until wages growth picks up. The market consensus is for a very marginal increase in annual wages growth – from 1.9 per cent to 2.0 per cent.

170811 Wage Price Index Growth Source RBA

Source: RBA