Company profits balloon as wages stay weak

New figures highlight why people might be a bit sceptical about the theory of “trickle-down economics”.


Monday’s economic data show that while company profits have ballooned, people’s wages are going backwards.

Company profits grew by six per cent in the first three months of the year, building on the 20.1 per cent jump in the December quarter, to be a hefty 39.7 per cent higher over the year.

In contrast, wages grew by a slim 0.3 per cent in March quarter to be just 0.9 per cent up on the year, less than half the rate of inflation at 2.1 per cent.

Little wonder voters have become disillusioned with their politicians, and feel they are missing out from Australia’s economic expansion over the past quarter of a century.

Monday’s business indicators have been compiled by the Australian Bureau of Statistics and feed into Wednesday’s national accounts, which are expected to show the economy grew by a modest 0.3 per cent in the March quarter.

This would be a marked slowdown from the 1.1 per cent rise in the final three months of last year, dragging down the annual rate to 1.7 per cent from 2.4 per cent in December.

However, economists expect the company profits result and growing business inventories will lessen the risk of a negative growth result, which was seen as a real threat following last week’s disappointing housing construction and investment numbers, and the subdued retail data for the quarter.

“While the GDP number now looks likely to be considerably better than early forecasts, the persistent weakness in wages and the ongoing lack of inflationary pressure is likely to continue to worry the (Reserve Bank),” ANZ senior economist Felicity Emmett said.

Economists will finalise their growth forecasts after the release of international trade and government spending figures on Tuesday.

The central bank will also hold its monthly board meeting on Tuesday.

Economists expect the Reserve Bank to leave the cash rate at a record low 1.5 per cent – where it has stood since August.

JP Morgan chief economist Sally Auld says despite increasingly bearish commentary on the economy in the media, she does not expect much change in governor Philip Lowe’s post-meeting statement.

“In our view, it will take a little longer for the RBA to reappraise their outlook, and for now, we expect the Bank will only acknowledge the ongoing correction in commodity prices, and perhaps pre-emptively downplay a weak (March quarter) GDP result,” she said.