Aussie Wages Growth: It Will come, Be Patient
Stay Underweight Discretionary Retail. In our note dated 2 February 2018, “Going into Survival Mode: The Rush to Innovate”, we described the structural forces suppressing wages growth and how they are likely to persist for some time and remain a macro headwind for Discretionary Retail.
Remain Patient and Wages will lift. The last two Labour Force Reports have shown a marked slowdown in employment growth from that seen during the previous 12-months. Furthermore, this has raised concerns that any hope a lift in wages growth has disappeared. We analyse previous cycles of wages growth and calculate the growth in employment during these cycles and find that its more important to sustain employment growth even if it is weaker than we experienced last year.
Making a Dent in Excess Capacity. The underutilisation rate hasn’t budged for 3 years and remains around 14%. On average, a 1%pt increase in wages growth is consistent with a 1.5%pt fall in the underutilisation rate.
Sustainability is the Key When Reducing Excess Capacity. Our work on employment demand and utilisation naturally raises the question about what pace of GDP is needed to reduce underutilisation. Despite these shortcomings, the data suggest that GDP growth of 2.75% is consistent with a 2.5%pt decline in underutilisation provided it is sustained for at least a couple of years.
Harvey Norman Holdings is engaged in integrated retail, franchise, property and digital system. Co.'s business activities include: franchisor; sale of furniture, bedding, computers, communications and consumer electrical products in New Zealand, Singapore, Malaysia, Slovenia, Ireland, Northern Ireland and Croatia; property investment; lessor of premises to Harvey Norman®, Domayne® and Joyce Mayne® franchisees and other third parties; media placement; and provision of consumer finance and other commercial advances.
Myer Holdings is a department store group, with more than 60 stores across Australia. Co. also owns Australian womenswear designer brand, sass & bide.
Retail Food Group is engaged in the intellectual property ownership; development and management Co.'s Brand Systems throughout the world, whether directly managed and/or as licensor for all Brand Systems excluding Esquires Coffee Houses; and development and management of coffee roasting facilities and the wholesale supply of coffee and allied products to existing Brand Systems and third party accounts. Co. is organized into seven operating divisions: Donut King Brand System; Michel's Patisserie Brand System; Brumby's Bakery Brand System; QSR Systems; Mobile Systems; Coffee Retail Systems; and Coffee and Allied Beverage. As at June 30, 2016, Co. had 2,530 outlets.
Super Retail Group's main activities are result in the following business segments: Auto, which include retailing of auto parts and accessories, tools and equipment; Leisure, which include retailing of boating, camping, outdoor equipment, fishing equipment and apparel; and Sports, which include retailing of sporting equipment, bicycles, bicycles accessories and apparel. Co.'s principal brands include Amart Sports for sports products such as equipment, apparel and associated accessories; BCF for an outdoor retailer; Rays for an outdoor entertainment and camping leisure retailer; Rebel for sporting and goods such as fitness equipment; and Supercheap Auto for automotive parts and accessories.
About us:
- The business is a Proprietary Limited Australian company that is owned and fully operated by Shane Lee from a small office in Sydney’s CBD.
- Shane worked for 17 years in Sydney-based senior research roles (economist, equity strategist and bond strategist) in global and regional investment banks and a domestic commercial bank prior to starting Macro Strategy Advisors. These roles straddled the asset classes making him uniquely positioned to advise multi-asset investors. He worked for the Reserve Bank of Australia (RBA) for 3 years as a housing, commercial property and equity market analyst and a liquidity forecasting specialist. He worked as a structural engineer in Queensland for 10 years prior to his career at the RBA.
Aim of our business:
- To partner with our clients in their aim to maximise returns. We provide timely, independent and thought-provoking research on thematic macro issues that are impacting or could impact financial markets. We aim to produce research that prompts our clients to question their assumptions.
Services:
- A fortnightly research note.
- Regular presentations and data support delivered by understanding our clients interests and investment process.
- We also in work in confidence to investigate, analyse and report on issues at our clients direction. This work is done on a project-by-project basis.
- As an Australian based business, the main focus is analysing how domestic and global issues impact Australian investors. However, our global and domestic insights are also valued by our offshore clients.
Our Edge:
- Our low cost base relative to our competitors allows us to provide a quality product at a reasonable cost.
- We are fully independent and don’t support a banking function or any third party. We have no interests other than providing our clients with the best possible research.
- Our focus is not point forecasting, but providing rigorous analysis and insight. We don’t routinely focus on the top or bottom 10% of likely outcomes to create a headline.
- Shane’s background in engineering has provided clients with unique insights into global infrastructure and domestic housing issues.
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