According to the Labor Price Index June 2011, published by the Australian Bureau of Statistics (ABS) last Wednesday, private sector wages increased by a modest 0.7% in the June quarter. Over the twelve months to June, private sector wages increased by 3.8% – slightly down on the equivalent figure in the year to March (4.0%).
This, according to Business Spectator Weekend Economist Bill Evans, means that “Contrary to anecdotes, and what you might expect given a relatively tight labour market, private sector wage inflation in Australia is moderating.”
Partly because of this, along with further evidence of weakening economic conditions overseas and in Australia, analysts are becoming increasingly certain that the next move in interest rates will be down. Westpac, for instance, expects the RBA to cut official rates by 100 basis points, with the first 25 point cut occurring in December.
Overseas, fears of double dip recessions in Europe and America continue to intensify. Weak manufacturing data and an uptick in jobless claims last week in the US has not helped.
More worryingly, however, back in Australia, the annualised growth rate of the Westpac–Melbourne Institute Leading Index, widely considered a good indication of economic activity three to nine months into the future, came in at just 1.6%. The reading – well below the long term trend growth rate of 3.0%, is the latest indication of a softening economy.
Whilst these developments are not encouraging, the good news is that building activity is set to hold up in spite of this. As reported last week on DesignBuildSource, industry research firm BIS Shrapnel expects the value of building starts to grow by eight per cent in the current financial year.
Aussie eases back after strong start
After a strong start, the Australian dollar eased back toward the end of last week to finish at $US1.032 The dollar has now fallen six per cent against the greenback so far this month, and is also down against other major currencies (see chart).
Many analysts cite continuing global economic uncertainly as the primary cause of the dollar’s weakness. The soft economic conditions locally do not help either.
In a sign that downward price pressures may be easing, inventory levels for many metals have began to level off – albeit at high levels. Still, ongoing concerns about the global economy will continue to be a factor in price movements going forward.
In significant commodities affecting the construction industry:
• Copper prices, currently at around $US4.00 per pound, are not far off six month lows. Though inventory levels (currently around 460,000 metric tonnes (MT)) are still near twelve month highs, they have stabilised over recent weeks. This means that some of the downward price pressure may be starting to recede.
• Having dropped almost 15 per cent since late July, prices of zinc stabilised last week and are now just under $US1.00. As with copper, inventory levels are high but have leveled off. (Current inventory levels are estimated at around 880,000 MT, compared with just under 640,000 MT twelve months ago.)
• Steel prices have come off highs earlier this year (see below). Domestically, supplies (and therefore prices) may be affected by BlueScope Steel?s decision to reduce its steel manufacturing capacity ? though the company stresses its commitment to the domestic market. Internationally, as mentioned last week on DesignBuildSource, Chinese purchases of iron ore increased during July, placing upward pressure on raw material costs for steel. However, Fortescue Metals said on Friday that it had noticed a change in behavior amongst Chinese steel mills as China attempts to battle inflation, possibly indicating that some of this pressure may be receding.