RBA sets up for a cut …

The RBA has set things up to resume the easing cycle that began in 2011 (I never believed in the whole ‘neutral’ thing … see here).  My current view is that the RBA will cut by 50bps in 2015, taking their policy rate to a fresh low of 2% by mid year.

The most likely quarter for the cuts is Q2 – which is long enough to see the impact of the falling terms of trade in the data.

Continue reading

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When +50k is -5k (maybe)

Getting right to the point,  my view is that the Feb 2014 jobs report is bunkum.  The survey is not designed to measure the number of jobs, and if you use a household survey for this purpose you are going to get stupid results some of the time … this is one of those times. After accounting for the silliness, the number of jobs added in Feb 2014 seems more likely to be -5k, rather than +47.3k.

We’ve seen this before — just last year in the Feb 2013 Jobs report.  Check it out, and you’ll remember the prior ‘turning point’ in the labour market – the +71.5k jobs was evidence that all the prior reports were bunkum, that the labour market was responding to lower rates, and that rate cuts were over ….

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Except that it wasn’t … it was a bug due to sample rotation and bad seasonal factors, and not only did the RBA cut in May and August, but the number has since been revised down to a more sociable +26.6k.

Yesterday’s report had the same problems – and the ABS (again) made a statement reporting that there was an issue with sample rotation.


Anyhow, it’s worth reviewing the data in any case, because the new seasonal factors change the story a little.  First, note the slightly better performance of the labour market over the last few months.  This now seems more consistent with GDP and business surveys.


Regular readers will know i dislike the jobs numbers in part as i do not trust the population benchmarks – the right way to get around that is to look at how the proportion of the population in work is changing. Even after seasonal reanalysis the employment share remains weak (excepting Feb).


Reflecting this, the unemployment rates continue to trend up.  Another odd feature of the new data is the spike in female unemployment. It looks like this is tied up with the sample issues (they produced a spike in employment, full time employment, and participation).  The unemployment rate rose 5bps to be just a whisker under 6.05% — so we almost printed a 6.1% on the screens.


The higher participation rate (more people looking for work) hid in part the higher employment estimate.  The employment to population ratio exposes this clearly – it’s a small uptick (and it might not be real), but there’s still ample slack in the labour market.

My bottom line on this report is that it’s a bit of a joke.  The trends are consistent with an economy that’s responding to lower rates as you would expect – but it’s still not clear if that’s going to be enough given the headwinds that are blowing from resource investment, fiscal policy and (potentially) slower Chinese growth.

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The 0.8%q/q GDP print looked pretty good at the headline level, and the 2.75%y/y (v. RBA at 2.5%y/y) looked even better – but when you dig a little deeper that is where the good news ends.


Over the last two quarters, there has been a nice increase in consumption, however this has been offset by slowing investment – and with the outlook for further declines of investment and slower growth in Government spending, consumption will need to keep firm (or net exports will have to keep booming) to keep overall GDP growth around 3%yoy.


The RBA cannot do much about net exports (reflecting the fact that they have only limited influence over the currency), so they tend to steer policy based on measures on domestic activity. The simplest regression analysis reveals that GNE (DD + Inv) is much more important for policy – and on this measure we remain near recession.


Sure things looked a little better the last two quarters, however we remain a long way from normal.

I know a lot of readers are interested in nominal GDP – and here the news is a it better – due to a (probably temporary) rise in the terms of trade. It’s up on the quarter, and down only a small amount on the year (note that the YoY % decline was similar to the GFC).

This has boosted nominal GDP a little – though the pace of growth remains weak by historical comparisons.


Myself, i prefer read GDI ahead of n-gdp, as it’s less influenced by inflation.


Again, this measure shows some improvement, but it’s a long way below normal.

Finally, thinking about policy – with the outlook for further declines in the terms of trade, it’s hard to see nominal GDP (or related measures) holding up. And with the bits of the economy the RBA most directly controls (domestic demand and GNE) still very weak, it’s premature to say anything more than that the data remains consistent with ultra-easy policy.

I still think the RBA’s next move is back to an easing bias.

Posted in AUD, economics, monetary policy, RBA | Tagged | 4 Comments

Aussie labour market plumbs new lows (Jan’14 report)

The Jan 2014 labour market report was BAD.


The unemployment rate rose to 6% — exceeding the GFC peak — as the ranks of unemployed women rose (female employment had been relatively stable). Continue reading

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IMF worries about mining bust, says AUD still 5% to 10% rich

Regardless of what you think of the institution, the IMF’s article IV consultation reports are useful as a source of information (and in particular for a summary of what the ‘official family’ is thinking).

The Fund‘s 2013 Australia report reveals that staff think the AUD remains over-valued …

Despite some recent depreciation the real exchange rate, currently in the range of 89 cents to the U.S. dollar, is 5-10 percent above the level predicted by Australia-specific factors from a medium-term perspective

… and that the official family agree …

Like staff, they expressed some surprise during consultations that the exchange rate had remained high despite the decline in the terms of trade, although it has depreciated more recently. Going forward, a lower level of the exchange rate would help balance growth in the economy. Continue reading

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not so hawkish (Q1’14 RBA SOMP)

Finding what you expect is a common failing of human beings — however I doubt it is wishful thinking that’s got me finding confirmation of my expectations in the RBA’s Q1’14 SOMP.

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As ever, the place to start with is the last page. Assuming the cash rate is unchanged at 2.5% until mid 2016, that the nominal AUD is steady at 89c (v the USD or a TWI of 69), and that the price of (Brent) Crude Oil is stable at USD104/bbl, the RBA expects that growth will be sub-trend until mid-2015, and that inflation will return to 2.5% over the projection period. Continue reading

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Is the RBA really neutral?

A funny thing happened yesterday. It was not the RBA dropping their easing bias — which was fairly obvious given the Q4’13 inflation surprise — but the way the market traded on the news.

To see why this was odd, we need to rewind so as to give context to market pricing before the statement was released.

Screen Shot 2014-02-04 at 5.01.44 PM

The above charts (from the Q4 SOMP) summarise the situation following the November RBA meeting: their central forecast was for growth to remain below potential (which is thought to be about 3%yoy) until mid 2015. As a result of this weak growth outlook inflation was expected to be around or below the 2.5% target for the entire projection period (the tick up and down mostly reflected the pass-through of a lower exchange rate to prices).

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2013 in review

The WordPress.com stats helper monkeys prepared a 2013 annual report for this blog.

Here’s an excerpt:

The concert hall at the Sydney Opera House holds 2,700 people. This blog was viewed about 58,000 times in 2013. If it were a concert at Sydney Opera House, it would take about 21 sold-out performances for that many people to see it.

Click here to see the complete report.

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Where did all the men go? (Oct Jobs report)

There are some interesting stories in the October employment data.

The macro news isn’t great, but the good(ish) news is that the unemployment rate remained basically steady at 5.7% (in unrounded terms is was +0.1).


Continue reading

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The Good, the Bad and the Ugly (Sep jobs edition)

These three charts summarise the state of the labour market — and the September employment report.

The good news is that the trend in hours worked is firm — in typical cycles hours pick up first, then job ads, and finally employment.


The bad news is that we are still seeing job losses at a decent clip — the chart below shows that the September gross flows data revealed a spike in transitions from employment to unemployment. The monthly data is noisy, but an uptrend in separations to unemployment is clear.


The ugly is the decline in the employment to population ratio. The decline in participation has been hiding the weakness in the labour market. It’s tough to find a job, so folks have quit looking for one.


I think there’s decent prospect that the upturn in the interest rate sensitive sectors will eventually lift employment. The hours worked story is a nice lead, and the flattening out (after a hug fall) of job ads is very encouraging.

It’s too early to be sure that the unemployment rate has peaked, and there remain troubling parts of the jobs report, but without an ongoing rise in the unemployment rate it’s hard to see the RBA cutting again.

Following this report, I put the odds of a cut this year at less than 20%

Posted in AUD, economics, monetary policy, RBA | Tagged | 11 Comments