Australian consumer confidence fell by the most in five months even as wages climbed, sending mixed signals on the economy as the central bank weighs whether to hold interest rates at a developed-world high.
The sentiment index dropped 2.5 percent to 96.6, according to a Westpac Banking Corp. (WBC) and Melbourne Institute Aug. 6-10 survey of 1,200 consumers released in Sydney today. A government report showed the wage-price index, which measures hourly pay rates excluding bonuses, rose 3.7 percent in the second quarter from 12 months earlier as mine workers’ pay surged.
The acceleration in wage gains was “a material surprise, and raises the uncomfortable prospect that wage pressures may have troughed,” said Alvin Pontoh, an Asia-Pacific strategist at TD Securities Inc. in Singapore. “The surprise fall in consumer confidence in the face of a generally positive backdrop casts doubt on the sustainability of the pickup in consumer spending we have seen of late.”
The Reserve Bank of Australia, which lowered interest rates by 1.25 percentage points from November to June to 3.5 percent and paused at the past two meetings, has indicated wages need to remain contained and productivity improve to ensure inflation stays within its target of 2 percent to 3 percent. Traders are pricing in a 67 percent chance the RBA will keep the benchmark on hold when it meets next month.
Powering growth is Australia’s biggest mining boom since a gold rush in the 1850s. The latest bonanza -- for iron ore, coal and natural gas -- is bringing investment projects the government estimates to be worth A$500 billion ($524 billion).
The resources boom has underpinned Australia’s currency, which has closed above parity with the U.S. dollar for all but 23 days this year, compared with an average of about 75 U.S. cents since its December 1983 float, and hurt the manufacturing and tourism industries.
Today’s wage report showed hourly rates of pay at mining companies increased 5.2 percent from a year earlier, the biggest gain among the 18 industries surveyed by the statistics bureau, and wholesale trade pay added 4.8 percent. Health-care workers’ income advanced by the least, at 2.6 percent, and retail employees earned 2.7 percent more, the report showed.
The wages data were “a tad high and fall on the side of the ledger which suggests that the RBA will stay on the sidelines for a bit longer and monitor global and domestic developments,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at RBC Capital Markets in Sydney.
The local currency dropped earlier today after the consumer confidence report showed lingering household concern about Europe’s fiscal turmoil and slower growth in China. At the same time, the government is seeking to return the budget to surplus and the Australian dollar has risen since the RBA’s last rate cut on June 5.
“With fiscal policy consolidating and the Australian dollar likely to remain high, adjustments in monetary policy are likely to be the only policy option available if further assistance is required,” Bill Evans, Westpac’s chief economist, said in a statement after the release. “Private-sector interest rates are only slightly below average levels. There is adequate scope for further monetary assistance.”
The local currency fell for a fourth straight day, touching $1.0465, the lowest level since Aug. 3, and headed for its first weekly decline in six weeks.
Evans said Westpac doesn’t expect a rate cut at the RBA’s Sept. 4 meeting. “However, despite current media speculation, we do believe that the case for further cuts is likely to be clear by the December quarter,” he said.
Asian stocks declined today, with the MSCI Asia Pacific Index of shares falling 0.5 percent to 119.81 at 12:14 p.m. in Tokyo.
Elsewhere in the Asia-Pacific region, a report may show Malaysia’s gross domestic product expanded 4.6 percent from a year earlier in the second quarter following a 4.7 percent increase in the previous three months, according to a Bloomberg survey of economists.
China is due to release foreign direct investment data for July this week, which may have declined from a year earlier after falling 6.9 percent in June as economic growth cooled, according to a separate survey.
In Europe, the Bank of England is scheduled to release minutes of its August policy meeting, and a survey of economists showed U.K. jobless-benefit claims may have risen 6,000 in July.
A Federal Reserve report in the U.S. may show industrial production strengthened in July, rising 0.5 percent, according to the median estimate in a Bloomberg survey of economists, as automakers boosted output and hot weather put greater demand on utilities.
Recent Australian data have shown stronger consumer spending, fueled by A$2 billion in government carbon rebates and benefit checks paid out since May, as well as the RBA rate cuts. Retail sales in June matched the biggest advance since April 2011.
Australia’s unemployment rate has remained in a range of 5 percent to 5.3 percent for the past 15 months. The economy added jobs in four of the past five months and unemployment declined to 5.2 percent in July from a revised 5.3 percent in the prior month, a government report showed Aug. 9.
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