On the face of it, yesterday’s capital expenditure data for the June quarter was good news and a continuation of a steady stream of positive economic data. The ABS’ “Capex” report looks at both actual investment and expected investment, and yesterday there was a solid rise in what is now the third estimate of spending for the present financial year — more than 17%, with big rises in planned investment for manufacturing (24%) and other industries (mostly service sector companies — 19%). The long, long fall in mining investment is also now down to its last dribs and drabs, as well.
The RBA will be pleased with these development and there will be plenty of opportunity for the bank to expand on these data in September with a series of public appearances: RBA governor Phil Lowe has three scheduled appearances, deputy governor Guy Debelle two, plus speeches by the assistant governor in charge of the bank’s economics work, Luci Ellis, and her head of economic analysis, Alex Heath. Both Lowe and Debelle are making major speeches in late September. The RBA board, as usual, will meet on Tuesday, and, unusually, Lowe is due to make remarks at a dinner in Brisbane that night — so he will be able to speak to his post-meeting statement.
Clearly, the signs are that the economy is doing better than most people think, especially consumers. Job creation has returned to 2015 levels after levelling off for most of 2016, retail sales are growing again (the 1.5% rise in volume terms in the June quarter was the strongest rise for more than three years), and investment is looking rosier. Housing investment is slowing, but not plunging as all the alarmists claimed it would. Iron ore, copper lead, zinc, aluminium and many rural commodity prices are rising or have rebounded in the past two months, and mining company profits have rebounded strongly.
[Congratulations Australia — your wages still aren’t growing]
But there is one gaping hole in this story and that’s low wage growth. And the RBA has elevated that to perhaps its most central concern for the next year, according to its 2017-18 corporate plan released yesterday. In the Monetary Policy section, the bank observes:
“In Australia, wage growth has declined to a low level over recent years, reflecting spare capacity in the labour market, low inflation outcomes and expectations, and the adjustment of the economy to the end of the mining investment boom. These factors are expected to dissipate slowly, resulting in a gradual pick-up in wage growth over 2018 and 2019, although spare capacity is likely to remain in the labour market. Consistent with this, consumer price inflation is forecast to increase gradually and remain consistent with the medium-term inflation target over the Bank’s two-year forecast period to mid 2019. The Bank has assessed the risks around the inflation forecasts to be balanced.”
Concomitant with low wages growth is the bank’s concern about household debt:
“Movements in asset values and leverage may be more important for economic developments than in the past given the already high levels of debt on household balance sheets. This suggests that the trade-offs for monetary policy may have become more complex at the current low levels of interest rates. Policymakers are wary of the implications of a further substantial build-up in debt and recognise that the high debt levels mean that monetary policy’s ability to stimulate growth may be more limited than in the past.”
This is all a marked contrast with the bank’s 2016-17 corporate plan, which used similar language to express concerns about debt but didn’t mention wages.
Since last year’s plan, overall annual Wage Price Index growth has been at almost exactly 1.9%, quarter after quarter. Private sector real wages growth this year has been negative. No wonder the bank has identified it as a problem.
[Shorten’s blasphemy on corporate tax cuts draws rent-seekers’ rebuke]
This is perhaps partly an explanation of why the government has been more interested in attacking Bill Shorten as a socialist/Kiwi/Brit/Cuban/business lackey, etc, lately rather than talking up a strengthening economy — which they’re perfectly entitled to do, especially given jobs growth has been so strong.
But cast your mind back to 1995, when Paul Keating was prime minister, John Howard had returned as Liberal leader and the economy was racking up a slow but solid recovery from the Recession We Had To Have. Keating kept pointing out that the economy was getting stronger despite lingering high unemployment. But Howard had a brilliant counter-punch: he dismissed growth as “five minutes of economic sunshine”. It hit a nerve in an electorate that didn’t feel like the economy was recovering, not when unemployment was above 8%.
The Turnbull government has a similar problem now. Voters don’t feel like the economy is growing — and nor should they, given companies are stiffing them on wage increases (with the encouragement of the government), underpaying them and demanding further industrial relations deregulation to strip workers of pay and conditions. In talking up the economy, Treasurer Scott Morrison and his colleagues have to tread a fine line in not eliciting a cynical response from voters who don’t care about business investment levels, only the fact that power prices are surging and their wages are stagnant while CEOs are making a motza.
Meantime, the drip-drip of poor wage growth data continues every quarter, and those predictions of a lift in growth keep getting pushed back — now, in the RBA’s view, to the year after next. And thus, most likely, after the next election.
Even if the economy is going well, it is hard to persuade people they are better off. It is human nature to think you are struggling, just as everyone is convinced they are a hard worker, and quite well off people think they are middle class.
Isn’t the whole point of the article that, thanks to stagnant wage growth, most Australians AREN’T better off? How, then, do you propose to convince them that they are? Mass hypnosis? Mandatory participation in shock-jock audiences? Free lobotomies?
Bernard I can only assume you do not read your colleague’s Alan Austin’s columns. Just yesterday he described the poor employment numbers. Given his statistics how can you possibly say that this Government has a strong jobs record!!??
Jezza
Because BK is totally sucked into being a RBA booster and won’t stop drinking the koolaid they feed gullible economic commentators – Gittins, Pascoe, Keane, Irvine and Martin et al.
The RBA has failed Australia for the past 10 years. Nowadays the RBA is little more an easy way for the govt of the day to outsource economic responsibility to an unaccountable bunch of overpaid economists.
The complete failure to manage the dollar bubble that has consumed Australia’s economic competitiveness on the back of the mining investment bubble destroyed the previous 20 years of painful economic adjustment. Our economy is essentially back to where it was in the 80s. But without a low dollar to drive new investment in import replacement and export opportunities.
Instead every time the dollar correct downwards, the RBA comes along and stuffs up the economic narrative with either a foolish post meeting statement or worse the RBA Gov or one of his deputies gives a speech and sends the wrong message to the market. The dollar then goes back up again 5-10%; sapping the confidence of business to invest in domestic operations. The economic numbers scream this out every quarter – but because Australia is such a provincial backwater there is little understanding about the complexities of exports beyond iron, coal, gas and wheat. All capital intensive – bulk commodity industries – that employ few people.
The RBA needs a complete overhaul and it leadership slapped with a minimum 50% pay cut to bring them into line with their global peers. Lowe is the highest paid central banker in the OECD and like his predecessor has utterly screwed the pooch.
Among the many cold hard truths facing Australia it the reality that you can either have high wages or a high dollar – you can’t have both and remain competitive – and anyone who says otherwise is either incompetent or just out and out lying. Probably a bit of both.
Only an economist or a neolib junkie (hi, BK!) could think that investment per se was an unalloyed “good thing”.
By whom? In what?
FFS, have we not had an abundance of evidence that hot money seeking a safe resting place (until the next boom economy somewhere else – hi PJK!) is an almost certain indicator of trouble ahead?
It is a continuing mystery why those at the helm in this country (both T1 & T2 so no hope in change of regime) seek such a dodgy fix to a perennial condition.
The RBA knows that it has the right, some might say duty, to regulate the money supply.
What a pity that endogenous/fiat currency is off the agenda.
The RBA is the problem. It’s had its head up its arse since 2005.
It completely mismanaged the economic conditions surrounding the mining boom; the currency bubble, and interest rates (both up and down), and now the housing bubble.
We are looking at complete institutional failure that will bedevil Australia for the next 2 decades. We might as well have stayed in economic stasis as to where we were in 1982 given where we have ended up. All that painful economic adjustment that Hawke/Keating made us go through to make us economically competitive on a global level has been flushed down the toilet because of the complete failure to manage economic condition since before the GFC.
Given how much Stephens and Lowe like to insert themselves into economic policy beyond the actual RBA charter – they should have told the Howard/Rudd/Gillard govts to make the States jack up mining royalties to slow down mining industry investment which was screwing up the real economy, while also fueling excess production capacity in the mining industry and hence lower prices long term.
All up, the RBA is a sad joke which couldn’t even manage a subsidiary selling currency printing presses – let alone the national economy for the long term benefit of we the citizens of Australia.
Loved seeing the word ‘concomitant’, haven’t seen it since I bravely used it in an HSC English essay in 1978. I agree with you on this one, you can’t tell people they are well off when they earn 1995 salaries but pay 2017 rates, gas, electricity, insurance, mortgage, rent, food and health costs. We can keep out noses above water, but we know we’re gonna drown soon.
Awful to be a conspiratorialist, but neoliberalism economic policy is driven by international ratings agencies, and most country’s governments and reserve banks (certainly this one), dance to their tune; line up for scores like celebs on “Dancing with the Stars”.
Given the agencies are predom US based, and the parlous socio economic state the US is in, when and how do we start questioning whether neoliberalism is the right path for us.
Surely increasing poverty, concentration of wealth, reducing full time employment should be greater concerns than capital expenditure data? Unfortunately suspect that this may be just as greater contrivance as “improving employment figures”.