13 December 2019
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If you want a pay rise, pray for good economic numbers today!

Peter Switzer
21 February 2019

If you’re sweating on a pay rise any time soon, today’s economic revelations could prove crucial to how fatter your pay packet becomes!

Away from your own materialistic desires, our jobs report out today gives us an insight into how the average Australian might be feeling.

You see, a rising unemployment rate spooks a lot of us, while a surging employment result makes us feel safe, even optimistic. And lately the doomsday merchants out there have had to endure a run of data that’s looking better than even I might’ve thought.

It started last week with a rebound in the NAB business conditions reading, which tells us what businesses are thinking about their businesses right now. This is how CommSec looked at the figures: “The NAB business conditions index rose from a four-year low of +2.6 points to +6.6 points in January (long-term average +5.8 points).” Meanwhile, the business confidence index rose from +2.7 points to +3.6 points in January, below the long-term average of 6 points but still heading in the right direction. Also, looming elections never help confidence.

The day after, Westpac put out its consumer sentiment number for February and it reversed the January slump, with the biggest lift in confidence in 33 months! The sentiment index rose by 4.3% to 103.8 points in February. A reading above 100 says optimists outnumber pessimists.

But wait, there was more to rejoice in, if you think being optimistic makes sense right now.

Within this consumer sentiment survey they ask other questions and these two positive revelations surfaced:

• The unemployment expectations index hit the lowest level in 7½ years at 120 points in February and is down by 0.5% over the year to February. 

• Melburnian consumers’ views on whether it was a good ‘time to buy a dwelling’ rose by 6.5% to a 5-year high of 125.1 points in February. 

These were important developments. First, the jobs market strength is critical to the Reserve Bank’s long-held view that a pick-up in wages growth could offset the drag on household wealth from the property downturn. According to Ms. Heath, who is the Reserve Bank’s Head of Economic Analysis, liaison with Aussie businesses on their hiring intentions left the Reserve Bank “pretty confident about the next six months or so”, despite the weaker spending environment. Meanwhile, consumers’ views on their own job security was the best in almost eight years.

But then on Monday we got the surprising good news that auction clearance rates in both Sydney and Melbourne came in much better than expected, which might be telling us that the price falls over 2019 could slow up and then form a base. By the way, lots of economists have held this view.

And in relation to spending, the Commonwealth Bank Business Sales Indicator (BSI), a measure of economy-wide spending, continued to lift after the soft growth in September/October last year, rising by 0.6% in trend terms in January. Spending grew across the majority of industry sectors and across all states and territories in January. It now means this spending growth of 0.6% in January is now above the 0.4% long-term average monthly growth pace. Also, 14 of 19 industry sectors monitored rose in trend terms in January, up from 12 sectors in December. So this is another positive development.

But wait there’s more.

We learnt on Wednesday that annual wages growth, including bonuses, saw the strongest growth rate in four years and the equal highest growth rate since December 2012!

Lots of news reports focused on the wage price index, which rose by 0.5% in the December quarter, following a 0.6% increase in the September quarter, which leaves the annual wages growth unchanged at 2.3%. Now that’s not good or bad news but certainly the fact that wages plus bonuses is actually showing some historically significant moves up, allows you to believe that we’re again heading in the right direction.

And with these gradually getting better good vibes for the economy, we now need another good-to-great jobs number today. The stronger the employment figure, the quicker we’ll see general wages start to creep higher. But it will be in the context of an economy not facing a house price Armageddon, an international trading outlook made brighter by a Trump trade deal with China and a stock market showing signs that it will resist falling into another big sell off of the kind we saw between September to December 24.

A crook jobs number will be bad for wage rises and the Government’s election chances, which improved this week, if we believe the Ipsos poll, which says it now lags Labor by only two points on the two-party preferred score. Economists are expecting 10,000 jobs but if there’s more, and there’s a good supply of full-time jobs, then anyone praying for a wage rise could see some employer generosity over 2019.

However, things have to work out. A Trump trade deal is needed. Our economy has to grow closer to 3% rather than 2%. There must be no Brexit curve balls to unsettle the global economy and financial markets and we need China to look like it’s managing to grow at a 6% or so rate.

Yesterday, the pretty smart Loretta Mester, who is the Fed boss for Cleveland, said she didn’t expect a US recession in 2019 and 2020. Considering the US economy is 24% of the world economy and we’re an economy that’s trade-dependent, this was good news for anyone hoping for a pay rise.

Go jobs!

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