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Consumers 'cautiously optimistic' despite flat wages

Lex Hall with AAP  |  15 May 2019Text size  Decrease  Increase  |  
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Consumer confidence has edged up and households remain cautiously optimistic ahead of the federal election despite flat wages growth, which has bolstered the case for a cut in the interest rates.

The Westpac-Melbourne Institute consumer sentiment index rose 0.6 per cent to 101.3 in May, gaining above the 100-point mark that separates optimism from pessimism, following a 1.9 per cent jump in April.

Westpac economist Bill Evans said it was a modest uptick that followed a surge in sentiment when the federal government's budget was released last month.

"The post-budget index reading was 104.3, meaning that sentiment in May has deteriorated by around three per cent compared to post-budget levels," he said.

"This probably reflects some 'cooling off' from the initial confidence boost, which was substantial".

However, wage growth remains flat, with a 0.5 per cent lift for the March quarter undershooting expectations and adding further weight to the case for a rate cut.

Quarterly growth was identical to the December result and fell short of consensus predictions of a 0.6 per cent rise, according to Wednesday's seasonally adjusted wage price index figures from the Australian Bureau of Statistics.

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Meanwhile the 2.3 per cent year-on-year growth matched expectations but has now remained stagnant for three consecutive quarters.

BIS Oxford chief economist Sarah Hunter said the data will add yet more pressure to the Reserve Bank to cut the cash rate, following a decline in mortgage lending and subdued retail sales volumes.

"Given their focus on the labour market and its recent strong performance we don't expect them to cut at their next meeting in June, but it's looking increasingly likely that cash rate cuts will materialise in the second half of the year," Hunter said.

She said Wednesday's data confirmed robust jobs growth, but there remained very little upward pressure on wages in the labour market.

"Although the recent drop in inflation means that the average worker is now enjoying relatively robust growth in real wages, the data are disappointing," Hunter said.

"With employment growth set to slow as the residential construction downturn really starts to bite, momentum in wages is unlikely to pick up until well into the 2020s."

The seasonally adjusted wage price index figures showed private sector wages rose 0.5 per cent for the quarter, and the public sector index rose 0.4 per cent.

Construction and retail wages continue to lag behind while healthcare, utilities, and other public-sector related industries - where employment growth has been strongest - are leading the way.

Labour force data for April will be released on Thursday.

The Australian dollar fluctuated after the release of the wage data and climbed to 69.28 US cents at midday.



Meanwhile, the Melbourne Institute's consumer confidence report noted that the index is still 0.5 per cent below its level a year ago, suggesting "consumers are feeling a little more optimistic but remain relatively cautious".

Confidence fell 14 per cent on the previous month for people with incomes of between $80,000 and $100,000 while sentiment rose 7.8 per cent for those earning less than $20,000 a year.

The survey results also indicated a gender difference in sentiment, with confidence falling 2.5 per cent among women but rising 3.7 per cent among men.

. Lex Hall is content editor with Morningstar Australia

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