In the race between the RBA and the economy, the economy is winning. The central bank is trying to add ballast and slow growth to get inflation to back off. But the big old beast has more momentum than the RBA realises.
Despite six months of steady rate rises, the unemployment rate is still heading lower. The Australian Bureau of Statistics (ABS) confirmed it on Thursday with numbers that would be absolutely beautiful if we weren’t so worried about inflation:
- Unemployment fell to 3.4%, the lowest since 1974
- The number of unemployed people fell below 454,000, the lowest level since 2008-09
- The number of employed people hit a record of 13.62 million
- The number of hours worked spiked very sharply to a record high
- Underemployment hit its lowest level in decades: 6%
- The number of part-time jobs held steady in trend terms
- The number of full-time jobs rose by 16,800 in trend terms
- The participation rate was stable at just below its record high.
The only problem with these numbers is they are showing up when the intent of the government and the RBA is to dial things down a little, cool the economy, let price rises abate.
One read on the figures is the RBA needs to hike more. Another is that Treasurer Jim Chalmers’ first budget (so soon forgotten!) wasn’t nearly tough enough. If he was trying to ice inflation, it was a lukewarm attempt.
Adding to this view is that consumer confidence rose last week, albeit after six weeks of falling. It remains well below historical averages. On the other hand, job ads fell 3.7% in October, according to Seek, and the ABS payrolls series shows jobs and wages falling. So there is some evidence the economy is longer at a rolling boil — it could be coming down to a simmer.
The most likely event is the RBA hikes rates by another 25 basis points in December. But futures markets aren’t too certain of that. They are pricing in a good probability of it happening, but not a certainty.
If the RBA does leave rates on hold at 2.85%, it will be because of international developments.
In the US, the narrative is shifting. The nation is seeing evidence inflation is past its peak and jobs growth is moderating. An idea has taken hold — interest rate hikes are working and soon could be held steady to avoid a big recession. This is called a “soft landing”.
Australia, the new numbers tell us, is in a different part of the cycle. We’re behind the US by several months. A few more rate hikes will happen before the RBA gets ahead in its race against the economy.
What kind of jobs?
The labour market is not making the kind of jobs it used to. As economics professor Jeff Borland points out in his latest labour market snapshot, routine jobs are going the way of the dodo.
It doesn’t matter if you work on a production line or drive an Excel spreadsheet — if your work is simple and routine, you are being replaced by a machine. The jobs that remain deal with the lumpy and unpredictable. You might be pulling up weeds or negotiating mergers, but a machine can’t match the judgment and deft touch you have to bring to succeed at your job. You’re safe from the rise of the robot and, as a bonus, your job is probably more stimulating.
A great example is the grocery delivery supply chain. Robots now pack the bags, because all the environmental variables at that end of the supply chain can be controlled, making the process routine, as the next video shows. Difficult, to be sure, but routine.
But at the other end, where someone has to park the truck, grab the bags, cross the road, find the house number (even if it is behind some foliage), go up some steps and navigate a barking dog? That’s a job for a person, and it will be for quite a long time to come. If employment falls and then bounces back as the RBA slays inflation, that will only accelerate this shift to non-routine work.
