$3 doesn’t go very far nowadays. You might be lucky to get a bag of chips or a bottle of Coke with maybe a pittance of change left over. Not exactly the kind of growth Aussies are looking for from wages. But that is the reality we’re facing.
For the past decade the average weekly household income has only increased by $27. In comparison, the average weekly income increased by $213 between 2004 and 2008. Clearly there is a problem. And that problem could be the spark that sets off Australia’s powder keg of debt.
Aussie Debt: Three Times the Income
It’s no secret that many Aussies are barely treading water. In fact, as Bloomberg reports, over a quarter of households have a debt three times their income. It’s looming as one very dark economic cloud over everyday Australians. And there are no signs of clearer skies anytime soon. It could well and truly be time to batten down the hatches.
So how did we end up in this predicament? The mining boom is a big factor. But, ultimately, what goes up must eventually come down.
Alex Joiner, chief economist at IFM Investors explains it as follows:
‘Wages growth was very, very strong, but there weren’t the productivity gains to match it, so now it’s very weak because we’re simply not competitive,
‘So there needs to be a longer adjustment period, and that’s why you’re probably going to see wage growth only start to bottom out in the next few quarters.’
It might even seem confusing, as employment data suggests our economy should be humming along nicely. Though, as more seasoned economists will tell you, you can never look at data in isolation.
Lack of Well Paid Jobs
The problem isn’t a lack of jobs — it’s a lack of well paid jobs. A lot of workers that earned good money in the mining and construction sectors have had to fall-back on lower paid work as demand in the industry eases.
We’re also working fewer hours according to Alex Joiner. He believes that a casualisation of the workforce is directly impacting wage growth as well. These workers just don’t have the necessary bargaining power.
What we’re left with is an economy of workers that have loaded up on debt to prop up the economy, with not much to show for it. With interest rates at a record low of 1.5%, the Reserve Bank can’t exactly intervene even if it wanted to.
And despite what the inflation data may say, prices are going up. You don’t need to be an economist to notice the rising price of your power bill. All in all, things Down Under aren’t looking too hot. Unless we receive some economic miracle, expect some rough times ahead.
You can and should prepare yourself for a downturn. Don’t leave yourself exposed. Grab your copy of the Aussie Recession Survival Guide right now.
Junior Analyst, Markets & Money