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RBA’s Ellis Says Weak Household Income Explains Jobs-GDP Puzzle

RBA’s Ellis Says Weak Household Income Explains Jobs-GDP Puzzle

(Bloomberg) -- Australia’s households have been hit by a double-whammy of sluggish wages growth and weakness in other sources of income, a senior central bank official said.

In a speech to a housing industry conference in Sydney Tuesday, Reserve Bank Assistant Governor Luci Ellis said “a confluence of factors” has seen weakness in income outside of wages from labor. That’s helped explain a disconnect between the nation’s robust jobs market and slowing economy, she said.

“Labor income is not especially strong, but it no longer seems at odds with growth in employment and other information about wages growth,” said Ellis, the governor’s chief economic adviser. “Rather, growth in other sources of income has been weak for some time, and this has continued more recently.”

RBA’s Ellis Says Weak Household Income Explains Jobs-GDP Puzzle

The RBA is trying to resolve a contradiction between strong hiring that’s seen unemployment fall to an eight-year low and a slowing of economic growth. The key factor has been weaker household spending, which accounts for almost 60 percent of GDP, with many analysts seeing tumbling house prices as the reason why consumers feel poorer and are therefore spending less.

Read more: Australia’s Unemployment Rate Defies Downturn

Ellis cited the main sources of non-labor income as social assistance, rents, other investments, and the earnings of unincorporated businesses.

While Ellis noted that wages have begun to improve, she noted that tax payments are unusually high as bracket creep takes hold, rental incomes are easing and social security payments are stagnating. Furthermore, the weaker property market has impacted housing-related firms.

“In some cases, this is a trend change that is likely to persist,” she said. “Some others are driven by shorter-term factors that could reverse in coming years.”

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Chris Bourke, Edward Johnson

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