Could ASX shares follow Aussie wages in moving lower?
Given wage growth is a powerful economic indicator, there's a strong possibility.
This morning, the Australian Bureau of Statistics (ABS) released its wages data for the March quarter 2020. The ABS reported that the seasonally adjusted Wage Price Index (WPI) rose 0.5% in the March quarter and 2.1% over the preceding 12 months.
It's worth noting 2 things from these statistics. Firstly, these wage rises barely cover the rate of inflation for the same periods. According to the ABS, inflation was 0.3% in the March quarter and 2.2% over the preceding 12 months.
Secondly, this period only just clips the onset of the coronavirus and associated economic shutdowns and, as such, is more of an indicator of 'how things were' compared to 'how things are'. We'll have to wait until the statistics for the June quarter are released to get a better idea of how much the economy has been impacted by the coronavirus.
So, what do these wage figures tell us? Well, according to the Australian Financial Review (AFR), the data isn't too promising from an economist's point of view. The AFR notes that one economist is predicting an unemployment level of 12% in the weeks ahead and expects the Fair Work Commission to freeze the minimum wage in 2020. All of this points to relatively flat wages (perhaps even declines) for the remainder of 2020.
Most of the downward pressure on wages will come from soaring unemployment. Employers don't have much of an incentive to offer higher wages for new staff when so many people will be looking for work, however, to temper this blow, inflation is also likely to significantly drop through the remainder of 2020.
What does this mean for ASX shares?
Low wages are a consequence of lower economic growth, which is the underlying issue here both for the economy and (in my opinion) the stock market. Low growth and high unemployment translate directly into consumers spending less money, which in turn is bad news for ASX companies.
Consumer staples companies like Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) will likely fair ok, but it's the consumer discretionary companies that I think investors should watch out for.
With low growth and high unemployment, how many people will be shopping for new TVs from Harvey Norman Holdings Limited (ASX: HVN) or new iPhones from Kogan.com Ltd (ASX: KGN)? Not nearly as many as were in 2019 I'd wager.
We have some sobering numbers here and I wouldn't be surprised if the flow-on effects emerge on the ASX this year.
