Persistent record low unemployment in Australia threatens extending RBA rate hikes: BetaShares
Low unemployment suggests persistent spending, but Roy Morgan sees the Oz unemployment rate at 9.2%
Source: iStock
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KEY POINTS
- David Bassanese, chief economist at BetaShares, has today urged caution in regards to persistent low unemployment in Australia
- Bassanese says today’s latest data not harmonious with a narrative RBA may pause rate hikes, per JP Morgan’s expectations
- Worth keeping in mind, however, is that the ABS considers one hour of work a week as “employment,” Roy Morgan’s data less rosy
The chief economist at ETF issuer BetaShares has today revealed he expects to see the RBA’s rate hike schedule continue rolling on with regular increases, contrasting with JP Morgan’s expectations for a pause in early 2023.
In its 2023 outlook, JPM forecast the RBA would conduct one more 25bps rate hike in February before entering into a pause. ANZ (ASX:ANZ) economists are calling for a 25bps hike.
BetaShares’ chief economist David Bassanese, however, isn’t so sure.
The economist sees ongoing low unemployment in Australia as supporting consumer spending, which threatens to keep inflation growing.
JP Morgan noted in an analysis on Nick Scali (ASX:NCK) earlier this week Australian consumer spending on household furniture during recent Black Friday sales was actually above the pre-covid average.
Australians also continue to take out credit cards at record rates, which leads Bassanese to think that the RBA will not pause rate hikes after February.
“A lot can happen”
“A lot can happen between now and February,” Bassanese says, but states “as evident in the September GDP report, overall consumer spending remains strong.”
Bassanese highlighted a softening in retail sales, but also flagged consumer demand is turning away from goods, while reflecting a stronger overall desire for services.
Services—especially rent—are one of the largest factors keeping CPI reads high at home, in the US, and in the UK especially.
Low unemployment requires slower wage growth
On Bassanese’s radar is the risk that higher-than-expected wage growth, coupled with record unemployment, would be a deadly combination for Australia’s economic recovery strategy through 2023.
“If wage growth can remain benign, Australia faces a good chance of getting away with a soft landing in 2023,” Bassanese says, adding this would isolate Australia from knock-on effects introduced by a US recession.
A different take from Roy Morgan
The Australian Bureau of Statistics defines employment as anyone who works at least one hour a week.
While one-hour-a-week shifts are basically unheard of, the classification does pose implications for sole contractors (think freelancers,) but it also means that junior hospitality workers even conducting three hour trials are considered employed.
This, clearly, is a lot different to a professional full-time worker.
Research house Roy Morgan calculates its own Australian unemployment rate.
Last month, it suggested that Australian “real unemployment” is actually far higher, at 9.2%.
A look at Roy Morgan's summary of unemployment, and, underemployment in Australia far exceeds the ABS's seasonally adjusted data (Source: Roy Morgan)
