Lots of jobs, but don’t go asking for a pay rise.
This is the data that didn’t matter last week, but probably ends up mattering a lot.
I’m talking about labour market data we got last week.
To start with the unemployment rate fell to a 48-year low of 3.9 per cent. That’s the lowest level since 1974.
Pretty epic.
There was a thought in the punditry that such a strong number might be enough to shift the focus of the election back on to the economy and tilt the balance in favour of the coalition.
It didn’t happen.
Unless you’re imagining that things could have been worse, but it’s hard to see how they could have been much worse.
And so it was another strong result, with a 90,000 odd movement from part-time to full-time work particularly encouraging. The number of unemployed is also now at 537,000, down from 700,000 just before the COVID-19 crisis
But while the jobs numbers came in strong, the wages data came in weak.
The Wage Price Index grew at 0.7% in the March Quarter, and just 2.4% over the year, which was pretty underwhelming.
These weaker-than-expected numbers had two big implications.
First, it brought focus onto real wages.
With inflation running at 5.1% over the year, the gap between the two is how fast purchasing power (=real wages) fell.
That is, it told us that real wages are falling 2.7% a year.
Well, that’s not great.
In fact, it’s pretty bad.
As Anthony Albanese was keen to point out, it was the biggest fall in real wages in twenty years.
So if there was political mileage to be made from a good unemployment rate, the fall in real wages probably took a fair bit of the gloss off it.
The second big implication is what this means for the path of interest rates from here.
For most of the year the RBA was saying they wanted to see evidence of sustained wage inflation above 3% before they’d consider hiking rates.
They surprised us with a rate hike last month, but noted in the minutes that they thought wage inflation was there because their business liaison was telling them that it was.
Turns out though, the business liaison was wrong, and it’s now looking like the RBA jumped the gun.
It’s too late to go back and change April’s decision, but what it means going forward is that any prospect of jumbo-sized rates cuts (something more that 25 basis points) is now off the cards.
Many economists are now wondering how high and how far interest rates will rise, with the answer certainly being lower than it would have been just three weeks ago.
So that means lower rates for longer.
Which, funnily enough, is what I’ve been saying for a while too.
JG.