Australian firms pay record salaries but housing a drag

SYDNEY (Reuters) - Australians firms doled out a record amount in salaries last quarter as hiring picked up in a welcome lift for a struggling consumer sector, but steep losses in the once red-hot housing market are whipping up headwinds for the economy.

FILE PHOTO: Commercial properties line the western side of Sydney's Central Business District in Australia, August 16, 2017. REUTERS/Steven Saphore

Data out on Monday showed third-quarter gross company profits surged to an all-time peak of about A$90 billion ($66.2 billion), up 1.9 percent from a year ago. The solid performance allowed firms to hire more, inflating their wage bill to A$138.3 billion.

While the overall salary bill for corporates has surged, this has not translated into stellar pay hikes with growth in the country’s wage price index crawling at around 2.3 percent.

That coupled with the housing downturn poses a political challenge for the ruling center-right coalition with elections due next year. That is also a major reason the central bank is expected to keep rates at a record low 1.50 percent at its December meeting on Tuesday.

Interest rates have been on hold since August 2016, marking the longest period of unchanged policy since the cash rate was introduced in 1990. The futures market <0#YIB:> is not fully pricing in a hike until early 2020.

One blotch on Monday’s data was inventories, which were unchanged compared with analyst expectations for a 0.4 percent gain, suggesting a drag to third-quarter economic growth.

The gross domestic product (GDP) report due on Wednesday is expected to show growth of 0.6 percent in the third quarter, according to a Reuters poll of economists. That would take annual growth to a brisk 3.3 percent, slightly higher than government and central bank forecasts of around 3 percent increase.

Australia’s A$1.8 trillion ($1.37 trillion) economy is now in its 27th straight year of expansion but analysts expect a drag from the housing and consumer sectors.

Separate data out earlier showed home prices across Australia slipped 0.7 percent in November, clocking their worst performance since the 2008 global financial crisis.

The losses were led by Sydney, the country’s largest market, where prices fell 1.4 percent. Sydney’s housing market has tumbled 9.5 percent since peaking last July. The last time prices fell by that much was during the 1989-1991 recession.

Many economists believe the housing downturn will hurt private consumption with the household savings ratio already in a decline.

“House prices and consumption are clearly correlated,” George Tharenou, Sydney-based economist at UBS, wrote in a report.

“A 10 percent fall in home prices alone could cut 2 percent from nominal consumption in coming years,” he added. “We expect consumption to moderate from the strong 3 percent (annual) pace in recent quarters, to 2.3 percent in 2019.”

Also adding to the headwinds was an index of job vacancies, which slowed in November to annual growth of 2.3 percent -- the weakest outcome since May 2015.

“ANZ Australian Job ads have effectively tracked sideways since the start of the year, with the annual growth rate losing momentum as a consequence,” said ANZ economist David Plank.

“We concerned to see job ads sliding.”

Reporting by Swati Pandey; Editing by Sam Holmes