Sliding wages and sinking growth suggest a long haul to recovery

There’s a trend lurking in otherwise relatively positive jobs data that suggests even after economic growth returns we’re in for a long period of stagnation.

Yesterday’s payroll jobs and wages update from the Australian Bureau of Statistics showed the first real impact on jobs from the tighter lockdowns across Melbourne and regional Victoria.

More of that will show up in a month, but between July 25 and August 8 payrolls nationally fell by 0.8%, including a fall of 1.6% in Victoria. Jobs also fell 0.9% in Queensland and 0.4% in New South Wales.

Since mid-March, when the pandemic began hitting employment, total payroll jobs have fallen 4.9%.

But total wages have fallen 6.2% in the same period — much more than the number of jobs. That total fall has accelerated significantly since late June: in the two previous reports total wages had fallen 4.8%; in the late June report before those, wages had fallen just 3.2%.

As we already know from the wage price index data, private sector wages growth went into reverse in the June quarter. Now, via a different measure, we’re seeing continuing falls in wages this quarter.

That’s the flexibility of our industrial relations system in action — flexibility that the government, business and the media insist isn’t there.

But that means even as employment starts to recover, wage cuts might end up undermining household demand, which provides 60% of GDP growth.

That was the story of 2018 and 2019: the Coalition’s policy of deliberate wage stagnation undermining economic growth so much that the Reserve Bank took to calling for wage rises and fiscal stimulus.

And that’s all before yesterday’s news that Mosaic Brands is likely to shutter its hundreds of shops, the vitamin company Blackmores is cutting 10% of its Australian and New Zealand staff, and Alan Joyce’s decision to sack thousands of Qantas ground staff.

Without strong household demand, we’ve relied on a strong trade performance to drive private growth. Imports jumped by 11% in July suggesting stronger demand in the economy as it began reopening.

But exports fell 6% — or $2 billion — with iron ore exports down $934 million because of a 17% slide in exports to China. There’s some context needed for that — in June Australia exported a record $9.9 billion worth of iron ore.

Coal, though, is emerging as a problem. The value of coal exports fell 17% to $675 million in July, and in the 12 months to July exports were down 42% — or $2.35 billion — because prices of thermal and hard coking coal collapsed.

Steel production has slumped sharply outside China due to the pandemic, and power demand is also down meaning there’s a diminishing appetite for Australian coal other than high-quality coking coal. LNG exports also fell $228 million in July.

Even though we’ve been going gangbusters on trade — July was the 32nd monthly trade surplus in a row — trade will sag further as export revenues from education and tourism disappear with those from coal and LNG.

It’s understandable, then, that the Commonwealth Bank significantly revised its economic forecasts down yesterday. Its chief economist, Stephen Halmarick, said in a note to clients that the bank thinks the economy won’t regain pre-COVID levels until the second half of 2022.

The CBA now sees three consecutive quarters of negative growth this year: -6% rate in the June quarter (we find out about that next week) and then a -0.7% September quarter. It expects growth of 1.8% in 2021, and 2.9% in 2022 — still well below Prime Minister Scott Morrison’s target of nearly 4% growth.

Without decent wages growth — the CBA reckons wages will grow at just 1.4% next year — even modest growth targets look formidable.