17 April 2024
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Have the great job numbers killed CBA’s big rate cut call?

Peter Switzer
22 March 2024

There was great news on the jobs front, but it has raised the question about how well those 13 interest rate rises have worked to slow down the economy to kill inflation. More importantly, does it KO that ambitious call by the CBA economics team who have pencilled in three rate cuts before the end of the year and three more in 2025?

Remember, if unemployment rises, then the Reserve Bank would get worried about a possible recession and could start to cut ASAP, or at least after the Yanks start cutting, which has been a pretty usual practice in the world of central banking Oz-style.

In case you missed how good the jobs report was, here it is in a nutshell:

  1. Jobs created in February were 116,500, when 45,000 new jobs were expected by economists.
  2. The unemployment rate fell from 4.1% to 3.7%, which is a big fall, as the chart below shows.

As a response, money market traders reacted by reducing their expectations about how many cuts in rates this year. Meantime, the foreign exchange market shot the dollar up to 66.2 US cents from 65.9 cents.

All this isn’t great news for interest rate worriers. But those wanting term deposit rates to remain around 5% will be cheerier following these numbers.

So, I was keen to see what CBA’s economist Belinda Allen had to say about these labour market statistics. For those who don’t ‘dig’ the usual lingo of well-trained economists, let me sum up. Here we go:

  1. She says: “It is hard to believe that over 116,000 jobs were created in February or that the jobless rate fell 0.4 percentage points.”
  2. Trend data shows the jobless rate stable for the past six months.
  3. She thinks that seasonal factors could be making the numbers between November to February less reliable for gauging what’s really going on in the economy.
  4. The March data could bring a “payback”. This will be an important reading for the RBA and those praying for those three cuts in 2024 that the CBA has predicted.
  5. That said, for the here and now, Ms Allen was blunt with “…for now the optics mean that interest rates are going nowhere in a hurry.”

Interestingly, the Bureau of Statistics in January told us “…that more people were waiting to start or return to a job than normal,” but that could be because of big immigration numbers and those feeling the pinch from bigger home loan repayments.

Importantly, our CBA economist is arguing that there is a conflict in the job numbers. “The current cohort of labour market data is not matching the weak growth picture in the National Accounts or other second tier labour market data like jobs ads and applicants per job from Seek,” Ms Allen pointed out. We suspect we will receive some payback in the March numbers and will see the data converge.”

That’s eco-speak for she thinks job creation won’t be big and unemployment will rise, which will be bad news for jobseekers but good news for interest rate worriers.

The next RBA board meeting is on May 7. By then, we would’ve seen job numbers for March and the March quarter Consumer Price Index on April 24, along with a raft of retail, building and confidence readings.

That’s when the RBA will be able to assess how dodgy those great job figures are. It’s timely for me to remind you that when it comes to the economics-forecasting caper, you should never get too carried away with one month’s numbers!

I won’t give up on the CBA’s big rate cut call until I see the March and April job numbers. Also, the March quarter National Accounts’ economic growth reading will be the killer or creator of cuts to interest rates, and that comes out on June 5.

After that, the CBA economics team will look like cocky roosters or candidates for the feather duster factory!


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