Time to cut RBA. Get a hurry on.
Rate cuts are definitely go now. Are we allowed to say that?
After the RBA’s decision to hold last month caught everyone off-guard, including me, it does seem like the cards are falling towards another rate cut at the next meeting.
We got some insight into the RBA’s surprise decision last week when they released the minutes of their board meeting.
“The board believed that lowering the cash rate a third time within the space of four meetings would be unlikely to be consistent with the strategy of easing monetary policy in a cautious and gradual manner to achieve the Board’s inflation and full employment objectives”.
i.e we don’t want to look to panicky. Yet…
The board also noted that they “would receive important information before the next meeting, including another quarterly inflation report and additional information on the labour market and how the world economy is evolving, along with a revised set of staff forecasts”.
Which is just a fancy way of saying that they’re waiting for more data.
The forecasts aren’t going to be surprising, so that leaves the labour market and inflation.
On that front, we got the labour market data last week, and it came in a bit softer than expected. The unemployment rate jumped up to 4.3%, which is higher than where the RBA expected the unemployment rate to peak this cycle.
(You can bet the RBA’s boffins will be revising up those unemployment rate forecasts in the weeks ahead!)
And really, it’s kind of been surprising to most economists that the unemployment rate hasn’t risen further.
Take the Roy Morgan survey. This uses a much broader and generous definition of unemployment, and it’s been rising for over a year now – to be close to cyclical highs!
And the good jobs numbers have been a bit of a fiddle anyway, since they’ve been entirely driven by the public sector.
According to the CBA, the “non-market sector” (which comprises public and private service providers that rely on government funding,) has accounted for 60% of total job creation since the pandemic and 80% of job creation over the past two years.
That is, jobs growth is all about government jobs.
And you can see this in the unemployment rate data. Alex Joiner at IFM investors reckons that unemployment rate for the non-market sector is just 1.7%. In the non-market sector its 4.9% – which is probably a much better reflection of how the economy is actually going and how it ‘feels’ on the ground.
At any rate, given the RBA said they were waiting on the jobs data, you’d have to think that this all adds pretty materially to the case for cutting rates… hard.
The RBA also reckon they’re waiting on the inflation data, but I find it very hard to see that coming in hot. All the partials are pointing pretty solidly downwards.
That said, we’ve seen inflation lift for two months in a row across the ditch in New Zealand, so it is possible there’s some tariff bugs waiting in the wings.
But I’ve said it before and I’ll say it again. The RBA is already behind the curve. It needs to stop worrying about looking panicky and actually do something.
JG.