8 July 2020
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I’m giving the negative tales on jobs and interest rates the “bah humbug” rating ahead of Christmas, but I won’t dismiss these outcomes as totally out of hand. Watch this space.

Bad jobs story? Three more rate cuts? Bah Humbug!

Peter Switzer
16 December 2016

By Peter Switzer

Take this name down — Damien Boey from Credit Suisse — as he’ll either be a genius or the opposite! He has tipped the Reserve Bank might have to CUT interest rates three times, because we are over-borrowed!

More on that later. 

There was another story on our jobs report, which needs some clarification. These stories are both newsworthy but I think they were mishandled by a number of news outlets. In case you’re a victim of the world of click bait and the journalistic mantra that “if it bleeds it leads”, here’s an objective account of the two stories.

Let’s start with the employment numbers, which, of course, are called the unemployment numbers by much of the media. Many news operations look at the number of jobs lost, more than what were created. 

Now remember, these job numbers were important for confidence after that bad September economic growth number of minus 0.5%.

Yesterday, I showed that we’ve had 14 good economic stories versus three bad data drops for the December quarter. I also worked out that some of the bad news delivered in the December quarter was for information on the September quarter, because data often comes in late.

If this was a bad reading on jobs, it could mean the December quarter could be another negative economic growth number, which would mean that we’re in a technical recession!

Some news outlets led with 'unemployment rose from 5.6% to 5.7%,' as you’d expect. But it wasn’t the whole story.

So what happened?

  • Employment was up 39,100 in November but, over the year, the employment growth was 0.7%, which is the weakest in two years.
  • However, the full-time growth over the past two months is the largest back-to-back rise since March 2011.
  • Underemployment was down from 8.7% to 8.3%.
  • Unemployment did rise from 5.6% to 5.7% but this was because the participation rate rose. And that’s often a good sign for the economy, with people confident enough to look for work.
  • Queensland had some promising employment signs, which was a welcome development.

Despite this pretty good news on the full-time jobs front, the St. George economics team thinks the RBA could cut rates again.

And while on the subject of rate cuts, Damien Boey thinks the RBA could cut three times in the relatively near future.

He’s not alone, with NAB’s chief economist, Alan Oster, not ruling out two more cuts. And Macquarie has held that view for some time, though I haven’t see their latest rate prediction.

Economists can change their tips without a blink but I think it’s important for business and consumer confidence, so I take their calls fairly seriously.

Damien thinks Australian households are over borrowed. However, by cutting interest rates, the RBA can actually avoid too many debtors getting into repayment problems. It effectively lowers the cost of debt and would provide relief for anyone over-extended.

It comes at a time when bond market interest rates are rising and most economists think the RBA is on hold with rates but the next move is up in 2018.

Much of Damien’s analysis rests on something called the output gap, which looks at the actual output or GDP of the economy versus its maximum potential output.

This gap can be open for debate but the RBA and other economists look at the same information and they’re not seeing what Damien is prophesizing.

I don't always run with the majority but I’m backing the RBA (and a whole team of great economists) on this one. I think the full-time employment story is a precursor to an improving economy helped by the Trump impact on US and world economic growth, a lower Aussie dollar — it’s 73.65 US cents this morning — and the higher commodity prices we’ve seen since early this year.

I’m giving the negative tales on jobs and rates the “bah humbug” rating ahead of Christmas but I won’t dismiss these outcomes as totally out of hand, so watch this space.

By the way, here’s one take on those job numbers from Savanth Sebastian at CommSec:

“The outlook is certainly more encouraging. Job vacancies are holding near 4-year highs, in addition anecdotal evidence suggests activity levels amongst the business sector is lifting. The strength in commodity prices is also a positive and may be behind the strength in Queensland jobs growth. Almost 39,000 new jobs were created across the Queensland economy in November. It is still early days but the latest result is certainly more upbeat.”

Let’s hope Savanth’s right and Damien is wrong. 

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