Posts in this category analyse trends in labour costs published by various statistical agencies

No evidence of an imminent wages breakout in Australia despite the claims by the RBA to justify their hikes

Today (May 17, 2023), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the March-quarter 2023, which shows that the aggregate wage index rose by 0.8 per cent over the quarter (steady) and 3.7 per cent over the 12 months. The media are touting how strong the wages growth is but they should be focusing on the fact that Australia’s nominal wage growth remains well below that necessary to restore the purchasing power losses arising from price level inflation. Even though the inflation rate is falling significantly and nominal wages growth has picked up a bit, the problem still remains – real wages have now fallen for 8 consecutive quarters (2 years). Further with the gap between productivity growth and the declining real wages increasing, the massive redistribution of national income away from wages to profits continues. Further, the conduct of the RBA in this environment is contributing to the damage that workers are enduring. They continue to claim there is a threat of a wages breakout and so interest rates have to keep rising to create the necessary unemployment increase to prevent that from happening. It is just a ruse. The rising unemployment will be for nothing other than to repress real wages furthers. And meanwhile, the RBA interest rate hikes are driving up prices (for example, via the rent squeeze).

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US labour market slows a bit but no sign of a major contraction yet

Last Friday (March 10, 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – February 2023 – which revealed a slight dip in the number of net payroll jobs created and a slight increase in the unemployment rate. It is too early to say whether this marks a turning point in the US labour market after several months of interest rate increases. We will know more about that next month. January’s result was very strong, so a slight dip on that is no cause for concern. Most of the aggregates are steady and in terms of the pre-pandemic period, February’s net employment change was still relatively strong.
Real wages continued to decline in the face of a decelerating inflation rate. Overall, the US labour market is steady and doesn’t appear to be contracting fast in the face of the Federal Reserve interest rate hikes.

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The current inflationary period is not remotely like the 1970s

In the light of recent debates about whether we are back in the 1970s, where the only ostensible similarity is that inflation has accelerated over the last year or so, I dug into my data archives to remind myself of a few things. One of the problems with dealing with official data is that it gets revised from time to time and time series become discontinuous. So the labour market data for Australia tends to start in February 1978 when the Australian Bureau of Statistics moved to a monthly labour force survey. Researchers who desire to study historical data have to have been around a while and have saved their earlier data collections (such as me). But it is often impossible to match them with the newer publicly available data. You will see in what follows how that plays out. But, I was also interested to return to the past today after the ABS released their latest – Industrial Disputes, Australia – data (released March 9, 2023), which shows that disputes remain at record lows. So in what follows I show you how far removed the current situation is from what happened in the 1970s and this renders the narratives from our central bankers a pack of lies.

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Real wages in Australia continue to plunge but the RBA still falsely claims that wage pressure justifies interest rate hikes

The RBA governor has consistently sought refuge in claims that wage pressures in Australia are building and justify the central bank rate hikes – 9 consecutive increases since May 2022. The RBA has chosen to seriously mislead the Australian public on this issue and when confronted with publicly-available data that justifies that conclusion they claim they have unpublished data that shows a wages problem that is pushing inflation. They won’t publish that data, just as they won’t tell us what their secret meetings with bank traders a few weeks were about, except we saw profit taking from the banks increase immediately after the meetings. Today (February 22, 2023), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the December-quarter, which shows that the aggregate wage index rose by 0.8 per cent over the quarter and 3.3 per cent over the 12 months. Last week, we learned that employment growth had declined for the second consecutive month, while real wages continue to contract. Says a lot about mainstream employment theory that predicts real wage cuts will increase employment. This is the seventh consecutive quarter that real wages have fallen. There can be no sustained acceleration in the inflation rate arising from wages growth under these circumstances. Further with the gap between productivity growth and the declining real wages increasing, the massive redistribution of national income away from wages to profits continues. The business sector, as a whole, thinks it is clever to always oppose wages growth and the banks love that because they can foist more debt onto households to maintain their consumption expenditure. None of this offers workers a better future. Further, the conduct of the RBA in this environment is contributing to the damage that workers are enduring. While corporations continue to gouge profits, the RBA, like the schoolyard bully, has singled out some of the most disadvantaged workers in our society (low income earners paying of housing loans) and using them in their relentless push of mainstream ideology. This is a huge problem.

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Strong US labour market results – further evidence that mainstream monetary theory is flawed

Well, things are getting interesting in the US. The Federal Reserve started hiking interest rates in April 2022 and its decisions are underpinned by an theoretical framework that suggests the unemployment rate is above what it thinks is the natural rate (the rate where inflation is stable). So the rate hikes are meant to slow spending and increase the unemployment rate and cause price setters to stop accelerating prices up. Except the data isn’t obeying the theory and inflation is falling despite the rate hikes rather than because of them. This is another demonstration of how flawed the dominant mainstream economics has become. Last Friday (February 3, 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – January 2023 – which revealed on-going and very robust employment growth, rising participation and falling unemployment. These are good signs for American workers. Further, as inflation is now in decline, most sectors recorded both modest nominal wages growth is some real wages growth – another virtuous sign. The latest data is certainly not consistent with the Federal Reserve type narratives. The point is that the labour market is not behaving at all like the assumed model deployed by the Federal Reserve.

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Inflation has peaked, the supply side is recovering, and the interest rate rises were for what?

So the IMF has come late to the transitory inflation party. What was obvious months ago is now at the forefront of IMF forecasts. Better late than never I suppose. It is becoming clear that most indicators are still not predicting a major demand-side collapse in most nations. Growth has moderated slightly and the forward indicators are looking up. At the same time, the inflation data around the world is suggesting the price pressures have peaked and lower inflation rates are expected. Real wages continue to fall, which means that the inflationary pressures were not being driven by wages. So no wage-price spiral mechanism at play. And PMI data and related indicators (such as shipping costs, etc) suggest the supply constraints which drove the inflationary pressures are easing. So has all this been the work of the interest rate rises imposed on nations by central bankers (bar Japan)? Not likely. The rising interest rates and falling inflation are coincidental rather than causal. Which means the damage to low income debt holders and the bank profits boom from the higher rates was for what?

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US labour market is a sort of holding pattern – declining but slowly

Last Friday (December 2, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – November 2022 – which suggested that the US labour market showed signs of slowing further, with payroll employment growing by just 263,000 net jobs. The labour force measure showed employment and labour force growth turning negative as the participation edged down. The result was that the official unemployment rate remained largely unchanged – with both the demand and supply side falling in proportion. The quit rate is stable which suggests that the US labour market is in a sort of holding pattern – slowing weakening but not consistent with the Federal Reserve type narratives. There are also no fundamental wage pressures emerging at present to drive any further inflation spikes. Wages growth appears to be reactive to inflation rather than propelling it. Wages growth appears to be reactive to inflation rather than propelling it. The claim that wage pressures are now pushing inflation is untenable given the data.

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Australia – wage data shows real wages continue to decline for the sixth consecutive quarter

Today (September 16, 2022), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the September-quarter, which shows that the aggregate wage index rose by 1 per cent over the quarter and 3.1 per cent over the 12 months. There was a major discrepancy between the private sector (1.2 per cent for the quarter) and the public sector (just 0.6 per cent), which reflects the harsh wage caps that the federal and state governments have in place that are undermining the well-being of public employees. While there has been some pickup in the pace of nominal wages growth, the fact remains that workers have endured another quarter of real cuts to the purchasing power of their wage. This is the sixth consecutive quarter that real wages have fallen. There can be no sustained acceleration in the inflation rate arising from wages growth under these circumstances. Further with the gap between productivity growth and the declining real wages increasing, the massive redistribution of national income away from wages to profits continues. The business sector, as a whole, thinks it is clever to always oppose wages growth and the banks love that because they can foist more debt onto households to maintain their consumption expenditure. None of this offers workers a better future.

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US labour market – shows further signs of slowing

Last Friday (November 4, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – November 2022 – which suggested that the US labour market showed signs of slowing further, with payroll employment growing by just 261,000 net jobs. The labour force measure showed employment and labour force growth turning negative as the participation edged down. The result was that the official unemployment rate rose by 0.1 points to 3.7 per cent. There are also no fundamental wage pressures emerging at present to drive any further inflation spikes. Wages growth appears to be reactive to inflation rather than propelling it. Wages growth appears to be reactive to inflation rather than propelling it. The claim that wage pressures are now pushing inflation is untenable given the data.

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US labour market – weaker but employment growth remains positive

Last Friday (October 7, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – September 2022 – which reported a total payroll employment rise of only 263,000 jobs (further slowdown) and a drop (0.2 points) in the official unemployment rate to 3.5 per cent. Total labour force survey employment rose by just 204 thousand net (0.13 per cent), while the labour force declined by 57 thousand net (0.03 per cent) as a result of the decline in the participation rate of 0.1 points to 62.3 per cent. 4. As a result (in accounting terms), total measured unemployment fell by 261 thousand to 5,753 thousand which is why the unemployment rate fell by 0.2 points. However, while the unemployment rate fell, the combination of weakening employment growth and falling participation is a sign of a faltering labour market. There are also no fundamental wage pressures emerging at present to drive any further inflation spikes. Wages growth appears to be reactive to inflation rather than propelling it. The claim that wage pressures are now pushing inflation is untenable given the data.

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