Our financial planners and mortgage brokers pay a lot of attention to the economy, not only in Perth but across Australia. We know that we are very fortunate to live in Perth and in WA, and recent statistics continue to back our contention that WA is the most healthy of any state in Australia.
The ABS recently released statistics for the September quarter. They showed what a lot of Australians already know—employment and wages aren’t growing very much right now. While the motor vehicle industry is currently feeling the effects of the slowdown the most, many observers are concerned that the nationwide housing and retail markets will be affected.
What the ABS Says
The good news is that wages aren’t falling. ABS statistics for the September quarter indicate that wages rose by 0.5% when adjusted by subtracting bonuses. This was less than the 2.7% that economists had projected and is seen as a disappointment.
Headline inflation increased by 2.3% over the year, meaning that inflation increased more than wages did, thus causing a dip in the wage price index, which compares wages to prices. It was also noted that wage growth statistics were nearly identical for both the private and public sectors.
Wage growth has slowed because the labour market has slowed. From January of this year through September, employment increased by 0.8%, but the participation rate is the lowest it has been in 7 years. When demand for labour goes down, wages usually follow in short order.
Western Australia and South Australia have the highest levels of wage growth in Australia, with NSW at historic lows and Queensland, Victoria and Tasmania reporting near-record low levels.
Wage growth has decreased over the last year in every industry except for retail trade. Due to the mining industry’s reassessment of personnel utilisation and the slowing of new projects, wages in the mining industry have decreased by 2%, while wholesale trade’s wage growth has decreased by 2.9%.
The “silver lining” of the levelling off of wage growth is that wage growth is one of the main drivers of inflation. When wage growth is slow, inflation is much less likely. This means that the Reserve Bank won’t have to focus on countering rising inflation—this will free them to make decisions based solely on creating economic growth.
While the labour market is sending a signal that the economy is slowing down, other sectors are providing mixed signals. Retail trade statistics were higher for the September quarter and the housing market continued to show improvement. In addition, consumer confidence remained at reasonably high levels.
Motor vehicles were the only sector that was consistent with labour statistics, with sales down 0.7% in October and down 3.1% over the year. Both the commercial and passenger vehicle segments saw reduced sales this year. WA and Queensland were the states in which the motor vehicle industry fared the worst, especially in the commercial vehicle segment. Domestic motor vehicle production fell by 7% this year compared to the same time in 2012.
Usually, though, labour statistics are a better indicator of the state of any economy. In Australia, that means an economy that is transitioning into a post-mining boom mode. Essentially, the mining sector is spending less money due to less demand from China and due to revamping their processes to maximise revenue at the expense of personnel.
Future economic growth is expected to be driven by a strong export sector. However, many feel that the fate of the economy will ultimately be determined by household consumption. Due to the slowing of wage growth and employment growth, retail spending could also slow in the coming months.
Larger purchases are usually a good indicator of the economy, and motor vehicle sales indicate that the economy is beginning to feel the pinch of slowing labour and wage growth. Another indicator is first-home buyers. Even with low mortgage rates, first-home buyers aren’t as active as many in the market would like to see. In WA’s favour, the First Home Owner’s Grant is $10,000 for a new home in WA, making it more attractive for first-home buyers.
What We Think
While we are somewhat concerned with the mining industry slowdown, they are still providing a lot of jobs in WA. We don’t see a lot of growth for a year or two, but we do think that those who have survived the initial shedding of mining industry jobs will be safe in the foreseeable future.
Now, more than ever, it is important to ensure that your financial planning is handled by professionals, especially in the Perth area. Call (08) 9472 9766 to learn more.