By its own published criteria, the Reserve Bank has locked in interest rate cuts in light of the seasonally-adjusted April unemployment rate rising to 5.2 per cent. It was 4.9 per cent in February.
The underemployment rate has increased to 8.5 per cent from 8.2, resulting in an “underutilisation rate” of 13.7 per cent. That’s nudging towards one in seven Australians either being unemployed or underemployed.
The Australian Bureau of Statistics also revised the March unemployment rate to 5.1 per cent from 5.
Coming on top of Wednesday’s soft wage growth, the unemployment statistics make the Reserve Bank’s decision to leave interest rates steady last week look embarrassing, its business liaison out of touch with what’s happening in the economy compared with the NAB and Australian Industry Group surveys.
RBA governor Philip Lowe’s statement after the board meeting concluded with:
“[The board] recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target.
“Given this assessment, the board will be paying close attention to developments in the labour market at its upcoming meetings.”
Instead of improving, the labour market has deteriorated. The board’s next meeting on June 4 is now ‘live’ with a 0.25 per cent rate cut on the table.
And, to again quote Joe Hockey from 2013: “They’re not cutting interest rates because the economy is doing well. Interest rates are being cut to 50-year lows because the economy is struggling.”
Except that a 1.25 per cent cash rate wouldn’t be a 50-year low, it would be an all-time low.
There was an element of good news within the latest statistics. Employment continued to grow (albeit via part-time jobs) but just not fast enough to absorb an increase in the participation rate – the percentage of Australians either in work or looking for work.
The seasonally-adjusted participation rate last month was 65.8 – a rate only touched twice before, in January last year and November 2010, and never exceeded. The April female participation rate of 61 is new record.
A bigger workforce indicates Australia’s greater productive potential, but the rising underutilisation rate makes it harder to achieve stronger wages growth, which is what the country needs to turn around lack-lustre consumption.
But according to the latest RBA forecasts, even with two rounds of rate cuts, there will be insufficient stimulus to reduce unemployment until 2021 – at the far end of the forecasting horizon.