Photographer: Dallas Kilponen/Bloomberg
RBA's Ellis Warns of Slow Wage Growth Despite Robust Jobs MarketBy
Assistant Governor says jobs growth not boosting consumption
RBA sees no reason yet to change full employment estimate
Reserve Bank of Australia Assistant Governor Luci Ellis warned that wage growth could take longer to pick up even if the nation’s jobless rate hits the central bank’s estimated full employment level.
Despite a bonanza year in 2017 that saw about 400,000 new roles created, the nation’s jobless rate edged higher in December to 5.5 percent as more people looked for work. The RBA last year estimated the level of Australia’s jobless rate at which wage growth starts to pick up -- or non-accelerating-inflation rate of unemployment -- at 5 percent.
“Since then we have not seen a reason to change that broad assessment,” Ellis said in a speech in Sydney Tuesday. “But we are mindful that, as we approach that figure, there’s a risk we find there is more room to come down before wage growth picks up in earnest.”
In her speech, Ellis drilled down into three of the key issues confronting the economy: How much spare capacity it has; how much wage growth and inflation will pick up; and how resilient will consumption growth be if income growth remains weak.
Australia has “had especially strong employment growth over the past year -- more than double the rate of growth in the working-age population,” said Ellis, who is the central bank governor’s chief economic adviser. “But that hasn’t translated into strong consumption growth. Household income growth has been weak for a number of years, and that has weighed on consumption growth.”
While Australia’s struggle to push the jobless rate low enough to trigger wage increases has been reflected in much of the developed world, its weak household spending contrasts with global consumption-led upswings. A key difference is record household debt at 188 percent of income; the Reserve Bank of Australia has left interest rates at a record-low 1.5 percent for 18 months to discourage consumers from curbing spending.
“If incomes turn out weaker than they expect, or some other adverse news should arise, the households carrying the most debt might feel they have to rein in their spending quite a bit,” Ellis said.
She said there are already some signs of this in consumption data as “growth in spending on discretionary items, like travel and eating out, has slowed while growth in spending on essentials has held up.”