SA Data Wrap – wage growth slows although employment growth remains solid, inflation faced by local government picks up

Wage growth slows in South Australia
Latest figures from the ABS indicate that the annual rate of wage growth in South Australia has continued to slow. Wages in South Australia as measured by the Wage Price Index (WPI) rose by 1.9 per cent through the year to the December quarter 2017. This annual result is the weakest recorded for South Australia by the current WPI series which stretches back to 1998. It is also insufficient to keep pace with household inflation: the Adelaide Consumer Price Index rose by 2.3 per cent through the year to December quarter 2017.

Wage growth nationally also remains historically weak although it has picked up slightly. The annual rate of growth for the national WPI rose from 1.9 per cent in the June quarter 2017 to 2.1 per cent in the December quarter 2017.

Unemployment ticks up, but employment growth remains solid
The headline result from the latest Labour Force Survey figures released by the ABS last week was that unemployment in South Australia rose slightly at the start of the year. The State’s trend unemployment rate rose from 5.9 per cent in December 2017 to 6.0 per cent in January 2018. This rise was driven by an increase in the number of people looking for work rather than a lack of employment formation – the number of employed persons rose by more than the number of unemployed.

Employment growth remains solid. Total employment in trend terms rose by 1.5 per cent through the year to January 2018, which is well in excess of growth in the civilian working age population (0.6 per cent). This rate of employment growth is ultimately not sustainable in the medium to long term without a significant lift in population growth, but if it can be maintained in the short term it will help to keep downward pressure on unemployment and help soak up any further job losses stemming from the closure of local automotive manufacturing.

Growth in full-time employment was also quite strong over the past year (2.2 per cent). However, the level of full-time employment remains about 1 per cent below its previous peak level reached a decade earlier. In comparison, the level of full-time employment nationally has increased by 16 per cent over this period. The previous lack of full-time job creation has contributed to a relatively high level of underemployment in South Australia, which in turn has contributed to the weakness in wage outcomes observed earlier.

Looking at the state’s comparative performance, South Australia’s trend unemployment rate in January of 6.0 per cent was the equal highest in the country along with Queensland and Western Australia. The corresponding national figure was 5.5 per cent.

Local government price inflation increases
The Local Government Price Index (LGPI) rose by 0.8 per cent in the December quarter according to figures released by the SA Centre for Economic Studies today. In comparison, the Adelaide Consumer Price Index (CPI) rose by 0.7 per cent in the December quarter.

The LGPI measures inflation faced by the local government sector in South Australia in respect of their purchases of goods and services. It is analogous to the Consumer Price Index which measures price inflation faced by households.

There has been increases in both the LGPI and headline CPI over the past year. The LGPI rose by 2.9 per cent through the year to December quarter 2017, up from 1.6 per cent through the year to December quarter 2016. In comparison, the Adelaide CPI rose by 2.3 per cent through the year to December quarter 2017 having increased by 1.3 per cent through the previous year.

The rise in the LGPI has been driven by stronger price trends for construction costs and certain business service items. Inflation for both local government and households over recent quarters has also been impacted by relatively large price increases for electricity, gas and automotive fuel.

South Australia construction activity rose strongly during 2017
ABS preliminary estimates of building and engineering construction work done for the recent December quarter confirm that the South Australian construction sector enjoyed a solid rebound in activity during 2017. The volume of construction work done in trend terms rose by 1.1 per cent in the December quarter 2017 to be up 19 per cent compared to a year earlier. The rise in overall construction activity over the past year was driven by large increases in both engineering construction (up 24 per cent) and building construction (up 14 per cent).

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