Dreadful labour market data - bring on an interest rate cut

Wed, 13 Aug 2014  |  

The labour market is in dreadful shape. Not only is the unemployment at a 12 year high at a rate about 1.5 percentage points above full employment, but the employment to population ratio has slipped to a 9 year low and now annual wages growth has slumped to a level never before recorded by the Australian Bureau of statistics. There are close to 800,000 people unemployed.

This cocktail of horrible news belittles the huffing and puffing we all engage in each week on consumer sentiment, business confidence, retail sales, house prices, exports, the stock market, world GDP and the terms of trade. These data points count for little when the end game of economic policy making is growing the economy fast enough to support the labour market, and clearly on that score, economic policy is failing.

Quite obviously, the labour market information is telling everyone who bothers to listen that the economy is growing too slowly after a promising start to 2014. Over the past six years, for example, there have been only two quarters where annual GDP growth has been above 3.5 per cent and for three years, annual growth was below 2.5 per cent.

The average annual GDP growth rate over the past six years has been a sub-standard 2.5 per cent, some 0.75 per cent per year below trend. The output gap that has built up over this time must now be significant.

With current fiscal policy being directed at a mild tightening, the unimpressive growth rate and labour market malaise means there is now a need for more monetary policy stimulus. The RBA needs to cut interest rates to boost cash flows for those with debt and to encourage new private sector investment. Only then is it likely that the economy will grow at a pace that will generate enough activity to see the unemployment rate get anywhere near 5 per cent over the next couple of years.

The next RBA Board meeting is in three weeks, and there is more than enough information before it to suggest an interest rate cut will be considered. The RBA shouldn't sit by and watch the unemployment rate skyrocket and wages growth free-fall. With inflation in check, it can ease monetary policy to try to turn the labour market around.

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Wed, 29 Jul 2020



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The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

Tue, 07 Jan 2020

This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/the-governments-test-in-2020-220310427.html   


The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

For many people, the cost of the fires is immeasurable. 

Or irrelevant. 

They have lost loved ones, precious possessions, businesses and dreams and for these people, what lies ahead is bleak.

Life has changed forever.

As the fires continue to ravage through huge tracts of land, destroying yet more houses, more property, incinerating livestock herds, hundreds of millions of wildlife, birds and burning millions of hectares of forests, it is important to think about the plans for what lies ahead.

The rebuilding task will be huge.

Several thousands of houses, commercial buildings and infrastructure will require billions of dollars and thousands of workers to rebuild. Then there are the furniture and fittings for these buildings – carpets, fridges, washing machines, clothes, lounges, dining tables, TVs and the like will be purchased to restock.

Then there are the thousands of cars and other machinery and equipment that will need to be replaced.