THE Reserve Bank is increasingly confident sunnier business conditions will prompt bosses to lift wages as corporate Australia searches for the formula to prise open consumer wallets.
RBA governor Philip Lowe, who on Tuesday held the cash rate at 1.5 per cent for a 13th straight month as expected, was optimistic on the prospects for near-term pay rises despite concerns about debt-strapped households’ ability to spend.
While reiterating wage growth was low at just 1.9 per cent for the past year, Dr Lowe said “stronger conditions in the labour market should see some lift in wages growth over time”.
In his statement announcing the decision to keep the cash rate on hold, he said economic growth would gradually pick up “over the coming year” — a more upbeat tone than in his commentary last month.
The consumer has been missing in action this year, with shoppers watching their spending on discretionary items such as clothing and gadgets while juggling higher energy bills and, in some cases, higher mortgage repayments.
Dr Lowe also indicated the long-awaited baton pass from the resources sector to the rest of the economy was nearly complete, although economists expect mining spending is yet to bottom out. “The decline in mining investment will soon run its course,” he said.
Elsewhere, he appeared more relaxed on property prices, pointing out the Sydney market appeared to be “easing”, but warned homebuilding activity was likely to be near its peak.
ASR Wealth Advisers senior adviser Cai Lewis said the RBA’s decision to leave rates on hold “was no real surprise”.
“Between a red-hot property market and anaemic wage growth, their hands are tied,” Mr Lewis said.
National Australia Bank chief economist Alan Oster said Dr Lowe’s use of the word “solid” when describing prospects for jobs growth was the RBA’s strongest tone on employment for some time.
However, the governor’s admission “little further growth” was expected in homebuilding — which has ramifications for spending on items such as furnishings and fittings — meant there was a dark cloud on the horizon, he said.
“For the last couple of quarters when homebuilding activity has dropped, each time we’ve said it’s the weather,” Mr Oster told Business Daily. “I’m starting to worry that it’s (a construction downturn) already happening.
“There’s still a lot of building to be done; you don’t build half an apartment block and stop, but the cities that went hard in the apartment construction market — Perth, Brisbane and Melbourne — would be the ones to slide first.”
The RBA’s rates call came on the eve of crucial economic growth figures due today, covering the three months to June. Economists had initially pencilled in a modest gross domestic product number after data released on Monday revealed businesses drew down on their inventories more heavily than expected in the past quarter.
However, balance of payments figures released on Tuesday prompted a rethink, suggesting net exports may have contributed 0.3 percentage points to quarterly GDP growth after weighing on it the previous quarter.
RBC Capital Markets head of strategy Su-Lin Ong said she had upwardly revised her June quarter GDP estimate to 0.9 per cent, with annual growth now at 1.9 per cent.
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