If the RBA was looking for an excuse to hike, they’ll be disappointed
So last week we got a solid drop of labour data.
And it’s all pointing to rate cuts.
Not immediately. But the case for further rate hikes, which some economists are still expecting, is evaporating quickly.
First up was the unemployment rate, which jumped up from 3.5% to 3.7%. This is still an incredibly tight labour market – 3.5% was the lowest in 50 years!
But it’s a sign that the labour market is turning, especially when you combine it with the other labour data.
Like the job ads data. We got Seek’s April Labour Market report last week, and it shows that the number of open jobs is quickly falling.
Job ad volumes decreased 1.4% in April and are 19.1% lower year-on-year. Meanwhile, applications per job ad rose 7.7% in March and are 72.6% higher year on year.
Fewer jobs, more applicants = looser labour market.
That said, it’s still tight overall. The number of job ads is 25% higher than pre-Covid. So things are still tight, they’re just getting looser.
There’s an interesting gender dimension to this too.
If you look at the number of unemployed people, men and women are having a very different experience.
Since last October, the number of unemployed men has increased by 60,000, while the number of unemployed women has fallen by 18,000.
This isn’t about women taking men’s jobs. It’s about a shift in industry make-up, away from more male-heavy industries.
The other bit of data we got last week was around wages.
Annual wages were shown to be growing at 3.7% a year, which is a rate which will sit very comfortably with the RBA. There’s zero sign of a wages break-out on those numbers.
Not only that, the quarterly increase at 0.8% is on the way down as well.
And the proportion of people getting a pay rise fell from two thirds to 40%.
So it’s clearly looking like the wages data have peaked.
So put all that together and you have a picture of an economy that is slowly responding to the barrage of rate hikes the RBA unleashed on the economy over the past year.
The heat is slowly draining from the labour market. The unemployment rate will go up, and wages inflation will go down.
And with that, inflation will come down as well.
The question now is only around timing.
Can we bring down inflation without driving unemployment too high – like into the double digits?
That’s the so-called ‘soft landing’ the RBA is aiming for.
Or will it take something as severe as a recession to break the back of inflation.
That’s the dangerous game the RBA has to play.
Good luck gang.
JG.