Good news for jobs, bad news for interest rates

You don’t have to be an economist to figure out that if it’s raining jobs, then those with mortgages need to be prepared for another Reserve Bank interest rate hike before Christmas. And that’s exactly what economists are predicting as unemployment has fallen to its lowest level in 48 years.

However, many of them are predicting this rise because guessing RBA actions before the central bank makes its decision on the first Tuesday of every month (except January) has become part of their job. That said, some economists, who will tip the scales again next month, might also question whether the RBA has done enough to bring inflation down.

So let’s look at not only yesterday’s jobs report, but also the other economic readings available to determine whether or not a December rate hike is necessary.

Let’s compile a list, starting with the labor market, then dig deeper into reading about our economy. Here is:

1. Employment rose by 32,200 in October (consensus: 15,000), with full-time jobs up 47,100, but part-time jobs down 14,900.

2. The unemployment rate fell from 3.5% in September to a new 48-year low of 3.4% in October (the lowest since August 1974).

3. Seven consecutive rate hikes totaling 275 basis points apparently did not shake the labor market.

4. Wage growth, represented by the Wage Price Index (WPI), rose 1% in the September quarter — the fastest quarterly growth rate in 10½ years!

5. The weekly ANZ-Roy Morgan Consumer Confidence Index rose 2.7% last week, after falling 10.4% in the previous six weeks.

6. The Australian Construction Industry Forum (ACIF) predicts that an increase in commercial and infrastructure construction will offset a decline in residential construction over the next three years.

seven. The ABC index of household spending intentions (ICH) rose 0.9% in October, but annual growth fell from 14.1% to 7.4%. It’s a decent but decent drop, helping to slow down inflation.

8. NAB trading conditions eased from a 15-month high of 23.3 points to 21.9 in October which is a good sign now and the survey generally signaled easing cost pressures .

9. NAB Business Confidence fell from 4.5 to 0.2.

10. The Westpac-Melbourne Institute’s monthly consumer sentiment index fell 6.9% in November and nearly 40% of consumers (a record high) are looking to cut back on their Christmas spending.

11. The S&P Global Australia Services Purchasing Managers’ Index rose from 50.6 to 49.3 points in October. This is the first reading below 50 in nine months. At the same time, the survey indicated that price pressures intensified during the month.

Looking at these numbers, you can see the beginning of a negative impact on the economy from 2.75% rate hikes with lower consumer and business confidence. House prices are also falling, as the following from CoreLogic shows: “At the combined capital city level, house values ​​fell -6.5% after rising 25.5% during the recovery. Sydney home values ​​are down -10.2% since January’s peak (after rising 27.7%) and Melbourne values ​​are down -6.4% since February (after rising 27.7%). 17.3%). »

But these are still far from the 25 to 30% declines predicted by some economists.

So when it comes to December and the next RBA decision, I think CommSec’s Craig James will be on the money. “Rising interest rates will eventually slow consumer spending growth in 2023, but the extent of the slowdown will depend on the labor market,” he said. “Right now, employment is at record highs, unemployment is near a 48-year low and wages are rising at the fastest rate in a decade. All of these factors are supporting consumer spending.

He continued: “At the same time, the full impact of higher interest rates has not been felt by borrowers and the wider community. This impact of rising interest rates will be most felt in early 2023.”

But he ended with: “We expect the Reserve Bank to raise rates another quarter of a percent in December, bringing the cash rate to 3.1 percent.”

Let’s hope these rate hikes really start to work before the RBA meeting in February and we should thank our lucky stars that the central bank board members are going on holiday in January!

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