Tight labour market to drive up wages: D&B

Competition for labour and the potential impact on wages tipped as the most likely factors to impact mid-year business conditions

February 8, 2011

With employment expectations on a seven-year high and the jobless rate falling below 5 percent, businesses remain concerned the competition for labour will drive up wages in the first half of 2011.

As reported in the latest Dun & Bradstreet business expectations survey, which examines the expectations of executives for the June quarter, employment expectations are now at a net index of 11.

This follows a net 5 percent of firms increasing staff levels in the December quarter.

The non-durables manufacturers’ employment index was the highest of all sectors, with a net 9 percent of firms taking on new staff.

With unemployment levels already down to 4.98 percent from the peak of 5.83 percent in June 2009 firms are expecting that the competition for labour, particularly skilled labour, will drive up wages.

This in turn is contributing to declining profits expectations.

Twenty-seven percent of executives identify wages growth as their primary concern for the June quarter with these higher costs flowing through to profit expectations, which have declined seven points to a net index of 23.

This impact on margins comes at the same time as executives report an easing in sales expectations, which have dropped 16 points to a net index of 15.

Finally, the inventory expectations index is down three points to seven, while capital expectations have fallen seven points to six.

D&B CEO Christine Christian says while the survey suggests a robust economic outlook, there are signs of capacity constraints in the economy.

"Overall, the signs are positive for the economy. However, the increasing demand for labour and the expected impact on wages does point to some capacity constraints and if this continues it is likely to eventually show up in inflation," Christian says.

She says business executives must be attuned to these emerging constraints and seek to limit the impact on margins.

"Policy makers will need to ensure the supply of skilled labour can keep up with demand in order to avoid wages growth adding to the inflationary pressure that is already likely to emerge as a result of the Queensland floods and cyclone."

The latest Business Expectations Survey also reveals that 47 percent of executives see that a continuing strong Australian dollar will have a positive impact on their business in the quarter ahead – for 18 percent a significant impact.

The number of firms indicating that access to credit will be the most significant influence on their business in the quarter ahead is 18 percent (up three percent since last month).

Meanwhile, 27 percent of businesses rank interest rates as their primary concern, 27 percent consider wages growth to be the major influence on their business and 18 percent believe fuel prices will have the most significant impact on operations in the quarter ahead.

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