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SA Data Wrap – stable unemployment and sluggish wages

In this edition of the Data Wrap we take a look at key data releases over the past couple weeks that provide insight into the recent performance of the South Australian economy. Topics include the latest labour market report, wages growth, retail sales, local government price inflation, and forward indicators for the residential building sector.

Unemployment remains steady as rising participation offsets solid employment growth
South Australia’s unemployment rate remained stable in April. ABS Labour Force Survey figures released today show that the state’s trend unemployment rate was 5.9 per cent in April 2018, effectively unchanged from March. The national unemployment rate also remained steady at 5.5 per cent in April.

Digging deeper into the data reveals a generally positive picture of relatively solid employment growth and rising labour force participation for South Australia. This pattern is well illustrated by trends over the past year. Total employment in South Australia rose by 2.3 per cent through the year to April 2018, which is well in excess of expansion in the working age population over this period (0.6 per cent). Such relatively strong employment growth has helped to reduce the state’s unemployment rate by 0.8 percentage points over this period. It has also encouraged people to re-enter the labour force, with the state’s participation rate rising by 0.6 percentage points over the past year, reaching 62.9 percentage points in April 2018. While these trends are quite welcome, there remains considerable scope for improvement as labour force participation remains below its previous peak and there remains a high degree of underemployment.

Turning to other states and territories, unemployment in April was highest in Western Australia (6.4 per cent), Queensland (6.3 per cent) and Tasmania (6.0 per cent), and lowest in the ACT (4.0 per cent), Northern Territory (4.3 per cent), New South Wales (4.9 per cent) and Victoria (5.3 per cent).

Wages growth remains sluggish
Australian workers have suffered from sluggish wages growth over the past couple years and the latest Wage Price Index (WPI) data from the ABS shows little immediate change. The national WPI in trend terms rose by 0.5 per cent in the March quarter, down slightly from a rise of 0.6 per cent in the December quarter. Through the year to the recent March quarter wages rose by 2.1 per cent, which is only marginally stronger than the previous low of 1.9 per cent recorded in the corresponding period a year earlier.

In original terms, wages in South Australia rose by 2.1 per cent through the year to the March quarter 2018, which is equivalent to the national rise over this period.

Retail sales moderate
Consistent with the ongoing weakness in wages, growth in retail sales has continued to moderate. South Australian retail turnover in real trend terms rose by 0.5 per cent in the March quarter 2018, down marginally from 0.6 per cent growth in the December quarter. This result is consistent with national patterns, with growth in turnover slowing from 0.5 to 0.4 per cent over this period. The latest national quarterly result is somewhat soft by recent historical standards, while the South Australian result was marginally above average (at least compared to the state’s performance over the past decade).

Local government price inflation remains firm
Price inflation faced by the local government sector in South Australia remained firm in the first quarter of the year, figures released by the SA Centre for Economic Studies today show. The Local Government Price Index (LGPI) rose by 0.8 per cent in the March quarter, which follows an equivalent rise in the December quarter. In comparison, growth in the Consumer Price Index (CPI) for Adelaide, which measures price inflation faced by households, slowed from 0.7 to 0.4 per cent over this period.

There has been a steady increase in price inflation faced by the local government sector over the past two years. Annual growth in the LGPI has risen from 0.7 per cent in the year to March 2016 to 3.2 per cent in the year to March 2018. A similar pattern is evident for consumer price inflation over this period, although to a less severe degree (from 0.7 to 2.3 per cent).

The increase in price inflation for local government over the past 2 years has occurred across both recurrent and capital costs. In terms of the former, there have been notable price increases for energy costs, particularly for electricity and automotive fuel, and some business service items. Capital expenses primarily relate to road, bridge and related infrastructure development, and prices for these forms of construction have picked up noticeably over the past two years.

Building approvals fall but remain at solid level, while loans for new home construction decline
Data released by the ABS in early May shows that residential building approval activity has continued to moderate in South Australia. Trend data indicates that approvals of dwelling units fell by 0.1 per cent in March 2018, and were down 6.9 per cent compared to their previous peak recorded in August 2017.  However, the number of approvals for March was still 2.2 per cent higher compared to the same time last year due to robust growth during the first 3 quarters of 2017. Hence overall approval numbers remain respectable despite the recent slide.

Data on housing finance commitments for South Australia, another forward indicator of residential building activity, paint a less rosy picture. Loan commitments for the construction of dwellings or purchase of new homes in the 3 months to March 2018 was down 5.7 per cent compared to the corresponding period in 2017. Part of this decline may reflect that home loan approval activity was coming off a high in 2017 – the number of approvals for new home construction in 2017 were at their highest level since 2010.

 

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