While companies are doing well, workers have been left behind

Extract from The Guardian

Grogonomics

Wages growth

Greg Jericho

Over the past three years, company profits have far outstripped wage growth

@GrogsGamut

Tue 5 Mar 2019 04.00 AEDT Last modified on Tue 5 Mar 2019 04.05 AEDT

‘The chances of the government being able to argue during the election campaign that you are better off now than you were in 2013 or 2016 are fast disappearing.’ Photograph: Daniel Munoz/Reuters

The GDP figures for the December quarter of 2018 to be released on Wednesday will be the last set of national accounts to become available before the federal election. They represent the last chance for the prime minister and the treasurer to suggest people are better off now than they were either at the last election or when the Coalition took power in September 2013, and they arrive at a time when the economy looks to be slowing.
The week before the release of the GDP figures always contains a mass of new data, most of which feeds into the national accounts. As ever, the picture is not abundantly clear – there are some good signs, but overall it looks like the economy is slowing. And worse, the areas where it is slowing suggest households are unlikely to see any real pick-up in their income.

First the good news: the private new capital figures out last week showed that while investment in the mining sector continues to shrink, overall investment is growing.
In the December quarter, private new capital expenditure rose 1.3% in trend terms – the best results since September 2017:

And while investment in mining was down 4.1% and manufacturing investment was essentially flat, investment in the reset of the private sector was up 3.7% – the best growth for over four years.

Even better, the first estimate for investment in 2019-20 shows a strong pick-up across the board, including mining:

Now, clearly an estimate is just that, but in the 29 years going back to 1988-89, in the 19 times the first estimate has been higher than that of the previous years, the actual level of investment has increased 16 times:

So clearly there is good reason to be hopeful that investment will increase over the next 15 months – and that is key because, as a general rule, greater business investment equals more jobs. It is especially important because the latest forward-looking indicator of employment is not great.
The latest ANZ job advertisement data showed a 0.9% fall in February, coming off a further 1.7% fall in January. It meant that in February there were 4.3% fewer job advertisements than 12 months ago.

This poor news came off the back of the worst result for the Commonwealth Bank’s manufacturing purchasing managers’ index for seven months. The slowing suggests that while the sector is continuing to expand, it is doing so at a slower rate.

That does not make for a picture of strong employment growth, nor falling unemployment or underemployment. And as a result, it suggests chances for improved wages growth are diminishing.
Also diminishing is the building sector – another key area, given the importance of construction jobs.

Since the start of the housing boom in 2012 the real boom area has been in apartments. And in January the approvals of such buildings absolutely plunged:

The number of private sector building approvals for apartments in January was the lowest it has been since March 2012, and the 4,871 approvals was almost half that of November 2017.
The fall is most pronounced in Sydney and Melbourne. There were 16,000 fewer building approvals for apartments in the 12 months to January that year in Sydney and Melbourne than there were in the 12 months to January 2018 – a fall of 25%.

Only the ACT is still showing strong growth in apartment building approvals, while Darwin shows an absolute collapse over the past three years.
The final bit of economic news was contained in Monday’s business indicators released by the ABS. It showed that while the past year was another strong one for company profits, wages growth lagged well behind.
In the past 12 months company gross operating profits rose 9.6%, while total wages rose 4.1% (note this is the growth of the total amount of wages, not “wages growth” measured by the wages price index).
Now, one of the claims from the government and the business sector is that profits grow a lot more erratically than do wages, and thus it is not fair to compare annual profits and wages growth. This is actually quite true – and something I have noted previously. It is far better to compare annual wages growth with a three-year average of profit growth.
The problem for business groups and the government is that doing so doesn’t make the story look any better. Over the past three years company profits have grown at an average annual rate of 12.1% – far outstripping wage growth:

Wednesday’s GDP figures will likely see a softening, though still growing economy, but it also looks likely to show that while companies have done well, workers and households have been left behind.

And that means the chances of the government being able to argue during the election campaign that you are better off now than you were in 2013 or 2016 are fast disappearing.

• Greg Jericho is a Guardian Australia columnist