Australian Average Weekly Wages (4Q) (0:30 GMT, 19:30 EST)
Consensus: N/A
Previous: 1.3%
Outlook: Although official estimates have not been issued on Australian average weekly wages, it is likely that the fourth quarter of 2005 will reflect a continuation of the slowdown in the Australian labor market that began in the previous quarter. Although unemployment levels remain near thirty-year lows, employment growth began to stagnate toward the middle of last year as employer demand for skilled labor started to fizzle. Wage rates have suffered as a result of this weakening demand. Australia’s Wage Price Index came in lower than expected at 0.9% in the fourth quarter, supporting the case that average weekly wages will post a retracted level of growth for the end of 2005. As inflationary pressure from employee wages is reduced by way of the recent softening in labor demand, the Reserve Bank of Australia is not expected to take any immediate steps in altering monetary policy. However, employers have expressed sentiment that high quality skilled labor is difficult to find. This lack of quality labor may eventually spark a rise in the price of labor, which in turn, would generate inflationary pressure worthy of the RBA’s attention.
Previous: Average weekly wages in Australia grew by 1.3% in the third quarter of 2005. This was a 6.3% increase from wages that were paid on a weekly basis during the same quarter in 2004. The largest gain in weekly income was seen by government employees, whose wages increased by 2.4% from the previous quarter. Employees in the private sector, on the other hand, saw a mere 1.0% increase in their wages. Miners, construction workers, and professionals in the hospitality industry actually realized decreases in wages while educators received a larger boost in weekly average wages than any other group of professionals. Although paid wages on the whole were higher than the average of the previous three months, the third quarter marked a significant slowdown in wage growth in the Australian labor market. Recognizing the slowdown in income pressure on inflation, the Reserve Bank of Australia decided to hold rates at 5.50%, where it has been since March 2005.
German IFO Business Climate (FEB) (9:00 GMT, 4:00 EST)
Consensus: 101.5
Previous: 102.0
Outlook: The IFO’s survey of business climate in Germany is expected to drop slightly to 101.5 in February after recently released data has shown some weakness in consumer spending and foreign exports. Consumer expenditures, which account for over half of the German GDP, fell 0.6% in December and export growth fell to its slowest rate of expansion. In spite of the soft data, however, the IFO survey’s reading of 101.5 will be near cyclical highs, indicating that economic sentiment in coming months will still be strong. Many have shrugged off the recent weakness in spending and exports as a temporary dip and are anticipating GDP growth to pick up to as much as 2% for the year. Spending is expected to rebound in the second half of the year as consumers will look to take advantage of tax rates before the 2007 increase in consumption taxes to 19% from 16%. Confident that economic growth will be sustainable on the helms of a recovery in spending, interest rate futures traders are betting on a pair of ECB rate increases later in 2006.
Previous: In January, the IFO’s survey of business climate in Germany issued a reading of 102.0, the highest since May 2000 and considerably stronger than December’s figure of 99.7. Contributing to January’s more favorable business climate reading was a surge in construction investment and spending on new plants and equipment at the end of 2005. A rise in the number of contracts closed for residential construction projects lead economists to believe that domestic consumer spending may be on the rise, which would give the country’s GDP growth a significant boost as it has tended to rely on export activity for recent expansion. Sustained growth from such increased spending would give the European Central Bank some room to increase interest rates, provided other European economies, particularly France and Italy, follow suite with strong consumer spending.
Richard Lee is a Currency Strategist at FXCM.