Smackdown

Misery loves company

For all the attempts to talk down the economy or describe it as dire, jobs growth has been surprisingly strong in recent years.

And it was excellent to see the Reserve Bank revive the old 'Misery Index' today, showing a reading at about half-century lows. 

It's a metric I still track monthly, though I rarely post it these days due to the vitriol it inevitably appears to elicit!

The truth is that at about 5 per cent the unemployment rate isn't all that far off four-decade lows, and inflation is also comfortably low.

But, of course, everyone would be a bit happier with the world if wages were growing faster!

Capacity expands

Today's detailed labour force figures shed some more interesting light on recent trends.

Take Greater Sydney, for example: total employment has thundered another 3 per cent higher across the 2019 financial year to 2.83 million, representing an ongoing flourish of jobs.

Yet, with Sydney's participation rate rising several percentage points over the past half decade, the labour force has expanded even faster lately in recording year-on-year growth of 3.1 per cent.

And so the unemployment rate in Sydney is no longer falling (in June the reading was 4.2 per cent).

Greater Melbourne's annual average unemployment rate did continue to tighten, to just 4.75 per cent. 

Elsewhere, there remains lots more slack. 

With the Aussie participation rate running at a record high as more females and older Aussies seek work the Federal Budget is zooming back to surplus.

But the number of unemployed persons has increased at the last seasonally adjusted count to 711,500.

Even on an annual average basis the number of unemployed persons is now rising. 

The median duration of job search improved across the 2019 financial year in Sydney and Melbourne (both at 15 weeks as at the month of June), but has deteriorated elsewhere, so this measure is no longer improving either.

Thus, it's a really interesting dynamic. 

We've been through a strong period of employment growth, yet it hasn't got the labour force down close to NAIRU.

For a variety of reasons, including technology and globalisation, inflation remains stubbornly low, and the outlook for employment growth now appears to be softening. 

Beatdown

There have been sporadic calls in the media for the inflation target to be moved lower, effectively discrediting the inflation targeting regime. 

To cut quite a long story short, the Reserve Bank Governor clubbed these contentions right out the park today.

Lowe affirmed in no uncertain terms that the bank is committed to hitting its inflation target, and rates will be cut lower if required until the 2 to 3 per cent target is achieved. 

As such, it's reasonable to expect "an extended period of low interest rates", which has implications for the fair value of asset prices. 

Speaking at the Anika Foundation, a charity supporting research into depression and suicide, Lowe again stated that 'we are not inflation nutters' (from memory a phrase popularised by Mervyn King (?), though moving forward perhaps it ought to be tweaked for something a little more sensitive e.g. zealots, fanatics etc.). 

Regardless of this admittedly personal minor gripe, today's speech was unambiguous in its tenor. 

The inflation target remains firmly in place, and the Reserve Bank stands ready to cut rates further as required. 

Source: ASX

Roll on next Wednesday and the inflation reading for the June quarter, for which Westpac economists have calculated the trimmed mean reading could be just 0.3 per cent. 

But let's see.