Hiking events

Unemployment is down. Will the RBA continue to raise interest rates?

Source: AAP/Dan Hombrechts.

In the race between the RBA and the economy, the economy wins. The central bank is trying to add ballast and slow growth to bring down inflation. But the big old beast has more momentum than the RBA thinks.

Despite six months of steady rate hikes, the unemployment rate continues to fall. The Australian Bureau of Statistics (ABS) backed it up on Thursday with numbers that would be absolutely stunning if we weren’t so concerned about inflation:

  • Unemployment fell to 3.4%, the lowest since 1974;
  • The number of unemployed fell below 454,000, the lowest level since 2008-09;
  • The number of people employed reached a record 13.62 million;
  • The number of hours worked soared to a record high;
  • Underemployment has reached its lowest level in decades: 6%;
  • The number of part-time jobs remained stable as a trend;
  • The number of full-time jobs increased by 16,800 as a trend; and
  • Turnout remained stable just below its all-time high.

(PICTURE: ABS)

The only problem with these figures is that they appear when the intention of the government and the RBA is to scale things down a bit, to cool the economy, to let the price rises subside.

One reading on the numbers is that the RBA needs to rise further. Another is that Treasurer Jim Chalmers’ (so quickly forgotten!) first budget wasn’t tough enough. If he was trying to freeze inflation, it was a lukewarm attempt.

Adding to this view, consumer confidence rose last week, albeit after six weeks of declines. It remains well below historical averages. In contrast, job vacancies fell 3.7% in October, according to Seek, and the ABS series on payrolls shows a decline in jobs and wages. So there is evidence that the economy is no longer boiling – it could be simmering.

The most likely event is for the RBA to hike rates another 25 basis points in December. But the futures markets aren’t too sure. They assess a good probability of this happening, but not a certainty.

If the RBA leaves rates unchanged at 2.85%, it will be because of international developments.

In the United States, the narrative is changing. The nation is seeing inflation past its peak and job growth slowing. An idea has caught on: interest rate hikes work and could soon be maintained to avoid a big recession. This is called a “soft landing”.

Australia, the new figures tell us, is in another part of the cycle. We are several months behind the United States. A few more rate hikes will occur before the RBA gets ahead in its race against the economy.

What kind of jobs?

The labor market no longer creates the kind of jobs it once did. As economics professor Jeff Borland points out in his latest job market overview, routine jobs are going to sleep.

(IMAGE: JEFF BORLAND LABOR MARKET OVERVIEW)

It doesn’t matter if you’re working on a production line or driving an Excel spreadsheet – if your job is simple and routine, you’re replaced by a machine. The jobs that remain deal with the lumpy and the unpredictable. You may be pulling weeds or negotiating mergers, but a machine can’t match the judgment and skill you need to succeed in your job. You’re safe from the robot’s surge, and as a bonus, your job is likely to be more challenging.

A good example is the grocery delivery supply chain. Robots are now packing bags because all of the environmental variables at that end of the supply chain can be controlled, making the process routine, as shown in the following video. Difficult, yes, but routine.

But at the other end, where someone has to park the truck, grab the bags, cross the road, find the house number (even if it’s behind some foliage), climb some stairs, and navigate a dog that bark? It’s a one-person job, and it’s still going to be a long time. If employment falls and then rebounds as the RBA kills inflation, it will only accelerate this shift to non-routine work.

This article was first published by Crikey.