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A drop in wages and a slowdown in planned new jobs across small- and medium-sized businesses may be signalling the economy has reached a turning point as consumers struggle to maintain their spending plans in the run-up to Christmas.
In further evidence, the Reserve Bank will not have to lift official interest rates any further, while a key measure of activity across 150,000 small firms revealed a fall in wages through November as retailers in areas such as hospitality and tourism started to shed staff.
Wages in small- and medium-sized businesses have edged down in the run-up to Christmas.Credit: Jason South
The RBA, which held the cash rate steady at 4.35 per cent at its final meeting of the year on December 5, has been concerned that the nation’s tight jobs market will contribute to strong wages growth that in turn would add to inflationary pressures.
But the Employment Hero measure of activity across the small- and medium-sized business sector, to be released on Tuesday, showed the first drop in wages since May. Healthcare, IT, manufacturing and logistical businesses all reported falls of at least 0.4 per cent through last month.
While median hours increased marginally, there are now sharp falls occurring in the retail, hospitality and tourism sectors, with a 3.2 per cent decline over the past three months. The number of employees is also flat-lining after months of strong growth.
Employment Hero chief executive officer Ben Thompson said the slowdown in wages growth, and now the actual drop in small and medium-sized businesses, suggested the economy had reached a turning point.
“As the data shows wage growth is flattening to align with inflation, the RBA must consider halting interest rate increases for at least the near term,” he said.
“Our data indicates that the economy will continue to cool off as we head into 2024. It is likely that mid next year, we’ll see SMEs [small and medium-sized enterprises] cutting back on hiring and growth plans as the economy potentially enters a small recession.”
A combination of inflation, high interest rates and falling real wages has hit households ahead of the important Christmas shopping period.
The Australian Retailers Association estimates $9 billion will be spent by consumers this week on top of the $58.4 billion that has been spent since the start of November. This would be up just 1 per cent on the same period last year.
Association chief executive officer Paul Zahra said momentum had been building in the retail sector since the Black Friday sales of mid-November.
“November trading, by all accounts, appears to have been strong, despite cost-of-living pressures,
as shoppers capitalised on unprecedented deals and sales to tick off their Christmas lists early. This has helped prop up our pre-Christmas projections somewhat,” he said.
But card data from the major banks suggests consumers have gone back into their shells since Black Friday.
Westpac’s measure of card activity fell by 5.9 points over the fortnight to December 9, unwinding all of the boost delivered by last month’s special sales. Its index of activity is at its second lowest level since July 2022.
Senior Westpac economist Matthew Hassan said even with the boost from Black Friday, the quarterly pace of growth had almost stalled by early December.
“The weekly profile to date suggests much of the initial strength may have been due to consumers bringing forward purchases to take advantage of price discounts and that we are now starting to see the corresponding drop-off,” he said.
“That would in turn be entirely consistent with a consumer facing intense income pressures.”
ANZ’s measure of its card network is also pointing to a tough end of the year for households.
It found spending on non-food retail between early October and the first week of December is down 9 per cent on the same period last year. Much of that fall has occurred since June, when the Reserve Bank had lifted the cash rate to 4.1 per cent.
Economists Madeline Dunk and Adelaide Timbrell said December was likely to be a tough one for retailers.
“Anecdotes suggest households have been spending cautiously, making the most of sales events, and ‘trading down’ for cheaper products where they can,” they said.
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