Australia’s leading indicators of employment are plateauing or edging lower and its households are “deeply pessimistic” in the face of record mortgage payments, helping explain a more cautious stance from the Reserve Bank in recent weeks.
(Bloomberg) — Australia’s leading indicators of employment are plateauing or edging lower and its households are “deeply pessimistic” in the face of record mortgage payments, helping explain a more cautious stance from the Reserve Bank in recent weeks.
The RBA has delivered staccato-like policy moves this year: hiking in February and March, pausing in April for inflation, raising in May and June and then holding in July ahead of inflation. The hurdle to further tightening seems to be growing with the RBA on Tuesday pointing to the risk of unemployment pushing higher than the level needed to return inflation to its 2-3% target.
Ahead of employment data on Thursday, economists reckon 15,000 jobs were added in June, enough to keep unemployment steady based on a static level of participation. Incoming RBA Governor Michele Bullock earlier estimated the jobless rate will need to hit 4.5% to produce sustainable inflation.
The following charts suggest a slowing economy may begin to loosen the labor market and leave the RBA with not too much additional work to do — as long as next week’s quarterly inflation data shows ongoing moderation.
The RBA describes its monetary policy stance as “clearly restrictive” with the 4.1% cash rate the highest since April 2012. Consistent with that, longer-run bond yields are trading below their shorter-term counterparts, suggesting rate hikes may have gone too far.
The central bank’s tightening cycle has driven consumer confidence into the doldrums. For borrowers, scheduled mortgage repayments have jumped to a historic peak of 9.4% of household disposable income, the RBA estimates, and are expected to reach 10%.
The push higher in repayments reflects a number of borrowers on fixed-rate needing to reset onto higher variable rates.
If rising interest rates encourage households to save more, “the demand for labor would slow,” minutes of the RBA’s July 2 meeting released Tuesday showed. “And the unemployment rate would be likely to rise beyond the rate required to ensure inflation returns to target in a reasonable timeframe.”
The central bank’s May forecasts showed unemployment lifting to 4.5% by late 2024. The RBA will release its quarterly update of forecasts on Aug. 4.
The labor market remains tight, with just 1.2 unemployed persons per job vacancy nationwide, compared with 3.1 prior to the pandemic. Vacancies are now plateauing or edging lower and most economists expect job advertisements will ease over the remainder of this year.
“There is still an incredible number of jobs available across the nation,” said Callam Pickering, an economist at global job site Indeed Inc. “Given the current cost-of-living crisis, changing employers is often the single best way to get yourself a higher wage.”
Still, a surge in immigration since the reopening of borders is easing some of the labor shortages in the immediate post-pandemic period. As demand and supply realign and the economy slows, the jobless rate should shift higher.
But for now the jobs market remains strong, average hours worked are hovering near a recent peak. Separate data from the Australian Bureau of Statistics shows the number of multiple job-holders is at a record high.
Economists say these figures reflect the cost of living pressures facing households, forcing them to boost their sources of income.
The tight jobs market has fueled higher wages, included fatter bonuses. Yet, when adjusted for inflation, the picture isn’t that rosy.
Real disposable income per hour worked is down “a chunky 10% over the year, the biggest drop on record,” according to Tim Baker, macro strategist at Deutsche Bank AG. “There seems enough in the data to indicate the RBA is right to be reluctant to fully converge to the policy rate of Anglo peers. That could allow Australia to avoid the worst of the downturn that peers face.”
Australia has raised rates by a cumulative 4 percentage points during its 15-month tightening cycle, 1 percentage point less than the US, and 1.25 points behind New Zealand.
–With assistance from Garfield Reynolds.
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