The surprise drop in the unemployment rate does put pressure on Dr Phil Lowe and his board to raise rates again next month, but if they succumb to that pressure, they could eventually throw us into recession and speed up the arrival of rate cuts!

Dr Phil faces his ‘Dirty Harry’ moment when he asks: “Do I feel lucky?” For anyone who’s never seen that scene from the movie Dirty Harry, I’m sorry, but Dr Phil must be now wondering if he needs to fire another shot in his fight against inflation. If he does fire, it will be the unlucky number 13, and that’s when luck might run out for him as RBA governor and the economy, which will more likely end up in recession.

Sure, he has reason to think that his past rate rises haven’t been enough to slow the economy down to really KO inflation, but time is his problem and that means it becomes our problem. You see, he is expected to be shown the door come September when his contract is up, but that could be unfair and uninformed speculation. Of course, chopping off the head of the RBA boss, who in the eyes of many mucked up the “no interest rate rises until 2024” call and then inflicted 12 rate rises, might mean that Albo needs to be seen as a head-chopper of anyone who hurts his precious Aussie fans with big mortgages.

Against that, this unemployment number must make Dr Phil think that at least if he kills inflation before year’s end, smart analysis will say: “Dr Lowe was right, and he got the job done.”

It’s a tough job, but that’s why the RBA Governor has a million dollar plus pay packet!

So, how bad or good were these job numbers? Here’s a summary:

1. Jobs created were up 75,900.
2. Unemployment fell from 3.7% to 3.6%, when economists were tipping a result like 3.8%.
3. The participation rate rose to a record high of 66.9%.

I could try and argue the point that these numbers can’t be trusted as a means to answer the question about whether inflation is falling, but that’s what economists do to try and prove who’s the smartest.

History shows that one economist is smarter than the other until they get it wrong. Then the other economist is smarter than the other!

I stick to my story:

4. 12 rate rises in 12 months is the fastest monetary tightening ever.
5. Interest rate policy works with a long lag.
6. The mortgage cliff is coming in the second half of this year.
7. Most other economic indicators suggest that our economy is slowing. A recession is being tipped by more economists now than three months ago.
8. Central bankers aren’t great at picking the right interest rate needed to beat inflation and avoid a recession, as the 1990’s recession showed, when unemployment went over 10%! Right now, we have economic readings that say our economy is under pressure as the following shows:
9. Consumer sentiment is 72.9 and CBA economists say this is “a level consistent with major economic dislocations.
10. Business Confidence fell to minus 4 index points in the May and NAB economists say it “…has tracked at or below 0 since February – with most industries now in negative territory. Also “…forward orders fell sharply and if sustained will likely see a further sharp slowing in demand”.
11. March economic growth was only 0.2%, which annualizes at 0.8%, which is historically very low for Australia. We grew at 5.2% in 2021 and 3.7% in 2022!
12. The last actual monthly CPI reading was a low 0.3% but the 6.8% annual figure had a lot of statistical problems with it.

I hope Dr Phil thinks he is lucky, and he know he’s done enough to beat inflation, but it takes guts to believe in yourself when all around you are giving their uninformed two pence worth.

Yep, it will take guts of Harry Callahan proportions for Dr Phil to say ‘No’ to more rate rises until he sees a few more months of economic data. I hope he feels lucky, and so do all those suffering under the toughest monetary tightening ever!