This article first appeared on The New Daily website at this link: https://thenewdaily.com.au/money/finance-news/2017/08/16/stephen-koukoulas-unemployment/
Australia has given up on solving unemployment
It is a sad state of affairs to realise that the current crop of Australian policy-makers have effectively given up on reducing unemployment.
Treasury reckons that the lowest the unemployment rate can go without there being a wages and inflation breakout is around 5.25 per cent.
The Reserve Bank of Australia notes something similar, forecasting that even when the economy is growing strongly at an above-trend pace, the unemployment rate will hover between 5 and 6 per cent.
The current unemployment rate is 5.6 per cent or some 728,100 people – enough to fill the Melbourne Cricket Ground about seven times.
Given the Treasury and RBA estimates, it looks like Australia will never see fewer than about 700,000 people unemployed – no matter what kind of improvement we see in the latest jobless figures on Thursday.
It seems to be a peculiarly Australian issue. In the US, the unemployment rate is 4.3 per cent, in the UK it is 4.5 per cent, in Japan it is 2.8 per cent while in Germany, the unemployment rate is 3.9 per cent. And none of these countries is experiencing a wage/inflation problem. Indeed, even with the very low unemployment rate in Japan, wages are actually falling.
This article first appeared on the Yahoo7 Finance at this link: https://au.finance.yahoo.com/news/1607453-054918623.html
Are you paying more or less in 2017?
When it comes to questions of cost of living, Australians are not all that good at identifying where their household budgets are being stretched or where they are making savings.
In its most recent survey, polling company Essential Research, asked voters whether “compared to two or three years ago, is your household paying more or less for the following” and thereafter it listed 10 items. Since the end of 2014, two and a half years ago, the overall consumer price index has risen by 3.8 per cent, a modest overall gain over that time.
The respondents were spot on when it came to judging electricity and gas prices. A total of 84 per cent said that they were paying “a lot more or a little more” for their power. According to the Australian Bureau of Statistics, since the end of 2014, electricity prices have in fact risen 7.1 per cent.In terms of insurance costs, 69 per cent indicated that they were paying more, a figure confirmed by the ABS with an 11.6 per cent rise since the end of 2014.
For medical and dental costs, 63 per cent indicated they were paying more, with just 3 per cent saying they were paying less. The ABS data indicate that medical, dental and hospital costs have risen a substantial 16.9 per cent in just two and a half years.
These results are not surprising.
Consumers were, however, wide of the mark when it came to some other items.
The RBA appeared before the House of Representatives Economics Committee today.
Here are some of the things its officials said:
Economic growth is likely to remain below trend for a couple of years.
Inflation is going to remains below the mid-point of its target till beyond the forecast horizon.
The unemployment rate is going to remain above the level associated with full-employment until at least the end of the forecast horizon.
Wages growth is likely to remain well below the long run average for many years, a point which will crimp household spending and bottom line GDP growth.
Yet, and here's the ZINGER
The next move in interest rates is likely to be up!
Kouk Polling – a subsidiary of Market Economics – conducted an informal, unscientific, voluntary Twitter poll to test the support for the question of marriage equality in Australia.
The poll, which was conducted over the 24 hours to 5.30pm, 10 August 2017, asked the question:
Should the Marriage Act be changed to allow same-sex couples to marry?
Of the 6,948 people who voted, 92 per cent said “yes”, with 8 per cent voting “no”.
Even with a margin of error in the poll of 41 per cent, the “yes” vote would carry.
This article first appeared on the Yahoo7 Finance web site at this link: https://au.finance.yahoo.com/news/1586030-233201747.html
Why are we so pessimistic?
The optimism in the business sector that is evident in the Dun & Bradstreet and NAB business surveys has failed to translate to stronger economic activity, lower unemployment or any clear sign that the economy is doing well.
It goes to show that the business sector is just one part of the economy – an important one to be sure, but just one cog in the system. There is no doubt that it is important for the business sector to do well. But in isolation, high levels of business optimism are not enough to get economic growth to an above trend pace, the unemployment rate down and living standards higher.
To understand why the economy remains problematic, why the budget is still in large deficit and why the RBA has set interest rates at record lows, despite buoyant levels of business confidence, one only has to look at consumers.
Consumer sentiment is languishing in the doldrums and is a factor holding back household consumption spending.
The Westpac – Melbourne Institute index of consumer sentiment continues to show more pessimists than optimists, a position that has been evident for nine months. This extended period of pessimism is rare. The last time consumers were pessimistic for such a duration was in 2008, as the global economy plunged into the deepest recession since the 1930s.
When consumers are pessimistic, they tend to curtail spending growth. There is caution about running down savings or adding to debt because weak sentiment is usually associated with a lack of job security, weak incomes growth and cost of living pressures.
These dynamics are at play in the economy tight now.
This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/rates-fall-even-055840162.html
Could rates fall even further?
There’s no way the Reserve Bank of Australia will increase official interest rates while the economy remains in its current rut.
Australia’s economic fundamentals are quite problematic but this has not stopped some analysts from ramping up speculation about interest rate hikes, perhaps before the end of the year. More interesting, the money markets are pricing in higher interest rates over the next 12 to 18 months.
The reason why this is so misguided and misreads the current status of the economy is straight-forward. Growth, inflation and wages growth is low and the unemployment rate is high. It is worth taking a step back to see how the economy was performing the last time the RBA started an interest rate hiking cycle. That was back in October 2009, when the RBA increased the cash rate from 3.0 per cent to 3.25 per cent as the economy picked up steam as the impact of the global crisis faded.
In the six months prior to that hike in 2009, the unemployment rate hovered around 4.2 to 4.3 per cent and at the same time, annual wages growth was locked between 3 and 4 per cent.
Click on the link to see a recent 15 minute talk I gave on why it is always a good time to buy a house to live in.
It is both financial and the other benfits of owning.
What the RBA should have said and done today
At its meeting today, the Board decided to reduce the cash rate by 50 basis points to 1.00 per cent.
While conditions in the global economy are continuing to improve uncertainties remain. Growth in the Chinese economy has picked up a little and is being supported by increased spending on infrastructure and property construction, but the high level of debt continuing to present a medium-term risk. In the US and Europe, GDP is growing at a trend pace, but wages growth remains low and there is considerable slack in labour markets.
Commodity prices have generally risen recently, although Australia's terms of trade are still expected to decline over the period ahead.
Core inflation remains subdued in most countries and is expected to remain low over the medium term. Headline inflation rates have declined recently, largely reflecting the earlier decline in oil prices. In the United States, the Federal Reserve expects to increase interest rates further and there is no longer an expectation of additional monetary easing in other major economies, although a withdrawal of the current monetary policy stimulus is unlikely in the near term. Financial markets have been functioning effectively and volatility remains low.
The Dun & Bradstreet Business Expectations survey has just been released.
The full survey results are at this link https://dnb.com.au/article-bex-q4-2017-preliminary02.html#.WX_GvTOB24k
In terms of the key findings:
Uplift in business sentiment
Australian businesses are looking ahead to the final quarter of 2017 with renewed optimism, suggesting businesses are becoming more confident in navigating a challenging economic landscape. In Dun & Bradstreet’s July Business Expectations Survey, companies forecast a lift in sales, profits, employment, investment and selling prices in the December quarter, and reported improved business conditions in the June quarter.
Business expectations across the key aspects of the economic outlook have bounced back solidly, pointing to a lift in economic activity into the latter part of 2017. Also encouraging was a rise in the actual performance of the economy in the June quarter, a result that bodes well for the official GDP figures which are released in early September.
The big data points of the past week or so have confirmed the following economic facts.
The annual increase in underlying inflation is tracking at 1.8 per cent, locking in seven quarters where the inflation rate has been outside the RBA target range, and the unemployment rate remains high, at 5.6 per cent, which will inevitably lock in low inflaiton in future,
These two issues alone would suggest the need for monetary policy easing from the RBA. If the economic checklist is expanded to include below trend GDP growth, a surging Australian dollar and respective, but not great, performance from the global economy and the rate cut would be a slam dunk. Alas, the RBA is worried about financial stability, house prices in Sydney and Melbourne and is supremely confident about the outlook for the economy into 2018.
This means the RBA is not going to cut interest rates any time soon, even though a more progressive RBA would.
The economy is at an inflection point and which was it goes over the next six months will determine whether the next move in official interest rates is up or down. For the hike scenrio to move to centre stage, the following events must unfold.