Strong wages growth to help economy

Stronger income growth is likely to offset falls in company profits when the June quarter economic growth figures are released this week.

杭州桑拿

Wages and salaries rose 1.1 per cent in the June quarter, the strongest result in a year-and-a-half, the Australian Bureau of Statistics said on Monday.

JP Morgan economist Tom Kennedy called the figures surprising.

“This number captures aggregate gross earnings of employees, rather than wage rates, so today’s outcome is most likely owing to solid employment growth in the first half of 2015,” he said.

“Of note, wages in the mining sector rose two per cent, quarter on quarter, which is somewhat surprising given collapsing profitability and recent job shedding.”

NAB senior economist David de Garis said stronger incomes were good news especially as softer mining exports, weaker commodity prices and a large rise in inventories earlier in the year are going to weigh on June quarter growth.

Company profits fell 1.9 per cent in the June quarter, broadly in line with expectations, and were down 3.9 per cent in the 12 months to June, the ABS said.

“The profits numbers and inventories are a little bit softer but wages, salaries and supplements increased by 1.1 per cent. That tends to support the income side of GDP (gross domestic product). So, there’s some pluses and minuses there, offsetting each other there,” Mr de Garis said.

Estimated business inventories, seasonally-adjusted, were flat in the June quarter, following a 0.6 per cent rise in the three months to March.

March quarter economic growth was the fastest in a year, at 0.9 per cent, driven by a pickup in exports, stockpiling by firms, and household spending and housing construction.

However, Commonwealth Bank of Australia chief economist Michael Blythe said it would be a different situation with the June quarter GDP figures, to be released on Wednesday.

“Inventories are going to detract from GDP growth but inventories didn’t fall as many people had expected,” he said.

“It looks like we’re actually meeting sales through increasing production rather than running down stocks and that’s an encouraging sign of confidence in parts of the economy.”

Economic growth is forecast to have slowed to 0.5 per cent in the June quarter, with an annual rate of 2.2 per cent, according to an AAP survey of 15 economists.

Mr Kennedy, Mr de Garis and Mr Blythe are leaving their GDP forecasts unchanged.