13 June 2024
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Will the Treasurer end up a rooster or feather duster on interest rates?

Peter Switzer
17 May 2024

Yesterday there was good news and bad news on the economy. The bad news was that unemployment rose by more than expected — 0.2% to 4.1% — and the good news is unemployment rose by more than expected. You’d be heartless if you didn’t feel for the 30,300 people who lost their jobs in April, but 38,500 actually found work!

The whole jobs report is very positive for mortgagees, worried about steep home loan repayments and Treasurer Jim Chalmers, who this week tipped inflation and interest rates should fall before year’s end. He’s got five months until Cup Day, and if the economy keeps slowing, the jobless rate continues to rise and the CPI ‘de-sticks’ to head down, he will be crowing.

However, economics forecasting can be tricky. You can’t crow on one month’s data or results. It’s why confident, predicting economists are often roosters one day and feather dusters the next!

That said, this rise in the unemployment rate was a timely start for the Treasurer and the Budget which placed an enormous amount of importance on lowering inflation and getting interest rates down.

For those wondering how the unemployment rate rose when 30,3000 lost their jobs but those 38,500 found them, statisticians blame the rising participation rate, which means more people joined the workforce looking for work, and it takes time to find work.

Economists say the labour market is returning to more normal seasonal patterns and becoming a looser market.  “The labour market is expected to slacken over 2024,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, to abc.net.au. “The economy is slowing, and forward indicators of labour demand are weakening.”

History shows it’s too early for interest rate sufferers and Dr Chalmers to stop worrying about interest rate rises and delayed cuts. However, if May’s jobs report shows another rise in unemployment, then the conclusion will be that the Aussie economy is slowing faster than many economists have been thinking.

This would be a win for the forecasting economists in Treasury over the RBA’s number-crunchers. As Marcel Thieliant from Capital Economics told the ABC, if there was a continued rise in the unemployment rate “it would diminish the likelihood the RBA would deliver another interest rate hike”.

Another sign from these numbers that the economy is slowing was the 0.8% fall in hours worked, which was the first annual decline since early 2021.

As I say, it’s too early to crow about a slowdown in the economy that could deliver rate cuts earlier than expected but yesterday’s job number was a nice start.

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