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Hedge Clippings | 19 May 2023 This week's labour market figures showed a surprise monthly increase in unemployment from 3.5% in March to 3.7%, having reached an all time low of 3.4% last October. It has taken over 12 months of increased inflation, and as a consequence 13 months of interest rate increases, to flow through to the economy, and specifically to the labour market. To date, in spite of all the anecdotal evidence in the media, and reports from NAB and others that a combination of inflation and interest rates were causing severe stress to household budgets, there was little statistical evidence for the RBA to show for their efforts when setting monetary policy. (The possible exception to this has been the building industry, where a number of well publicised failures have been reported, no doubt as a result of fixed price contracts, supply chain delays and rapid increases in material costs in the interim.) Looking behind the headline unemployment rate of 3.7% (i.e. those actually looking for a job), the underlying numbers confirm the change in trend: According to Trading Economics, with data from the ABS, the total number of unemployed people in April increased by 18,400 to 528,010, while labour costs increased, with Average Weekly Wages rising over the quarter to $1,378.60 from $1,344.70, and Manufacturing Wages increasing to $1,545.60 from $1,464.50. Where this leaves the RBA's June decision will be the subject of much debate: Obviously, the 11 rate increases totaling 3.75% over 13 months are starting to have some effect, which may lead to a further pause in June, but while the RBA's forecasting unemployment to reach 4% by the end of this year - a rate they may have to adjust upwards - they won't be taking their eyes off the inflationary effect of higher wage costs recently awarded or announced. The RBA's nirvana is a soft landing, but just as Nirvana is difficult to achieve for a Buddhist, so will be the economic equivalent for Philip Lowe (or his successor!). |
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