Below is CBA economist Lucinda Jerogin’s round-up of this week’s economic data:
Key points:
- Australia’s seasonally adjusted unemployment rate rose to 4.7% in September on the back of a 39.4k decline in employment and the participation rate easing from 67.0% to 66.8%. However, in trend terms unemployment held at 4.6%.
- The RBA Board Minutes from the September meeting were decisively hawkish with a clear focus on upside risks to inflation and little attention given to downside risks to growth. This was in clear contrast to the messaging by the Governor in her unscripted answers in the post-meeting press conference. We continue to expect the cash rate to remain on hold from here but acknowledge the clear risk is another rate hike, with the November meeting very much live.
- The September CommBank Wage and Labour Insights showed wages growth remained at 0.8%/qtr and 3.3%/yr, while 20k jobs were added in the month. Employment growth at this level is around the breakeven rate needed to keep unemployment steady if participation is unchanged.
- Surveyed business confidence declined for the third consecutive month to the weakest level since May. Business conditions held steady but remain well below their long-run average.
- Offshore, uncertainty over the US-Iran war kept geopolitical risks elevated. US inflation data printed hotter than expected. China’s producer price inflation accelerated in September while consumer inflation remained soft. Elsewhere, Japanese producer prices unexpectedly fell in September.
- In the week ahead, RBA communication will be critical. RBA Deputy Governor Andrew Hauser will speak at Citi’s Australia & New Zealand Investment Conference in Sydney on Wednesday. This will be an opportunity for the Deputy Governor to fine-tune the messaging from the Board ahead of the November Meeting. Assistant Governor (Financial Markets) Chris Kent will also appear at our CommBank Global Market’s conference.
- Abroad, UK, New Zealand, Japanese and Canadian inflation data will be worth watching. Chinese Q3 GDP and UK labour market figures are also due.
Labour market data and the Minutes from the September RBA Monetary Policy Board Meeting were in focus locally this week, reinforcing the tension at the heart of the policy outlook.
The September Labour Force Survey printed weaker than expected, employment falling by 39.3k following a downwardly revised 29.3k increase in August. The participation rate eased from 67.0% to 66.8% to see the unemployment rate edge up by 0.07 ppt but remain at 4.7% on a rounded basis.
Residual data quality issues mean the ABS continues to recommend the trend estimates as the best guide to underlying momentum. On that basis, the unemployment rate was unchanged at 4.6% in September, although it has risen gradually through most of this year. Overall, the release was consistent with a labour market that is gradually loosening in response to earlier interest rate hikes and higher fuel prices.
The Minutes from the RBA’s September Monetary Policy Board meeting struck a decidedly hawkish tone. The discussion focused heavily on upside inflation risks, with little attention given to downside risks to growth. The Board judged that inflation risks had crystallised through the escalation in the Middle East, the AI driven data centre build out, and potentially greater domestic capacity pressures than previously assessed.
Members also acknowledged that repeated adverse supply shocks may require greater tolerance for slower growth and employment, while a rising global neutral rate could mean current policy is less restrictive than it would have been in the past. This contrasted with Governor Bullock’s more dovish post-meeting remarks, which emphasised the long lags in monetary policy and expressed hope that the four hikes delivered this year would be sufficient.
The mixed communication highlights the uncertainty around the path for monetary policy and what would trigger further tightening. We continue to expect the cash rate to remain on hold, but November is very much live. The labour force data on balance supports our expectation for an unchanged cash rate. However, the key question is not simply whether the labour market is loosening, but whether it is doing so quickly enough to bring inflation back to target. The RBA has also acknowledged that rolling supply shocks and persistent capacity pressures may require a higher unemployment rate than previously assumed. Looking ahead, Deputy Governor Hauser’s appearance next week and the Q3 CPI on 28 October will be critical.
Other data released this week came in the form of surveys. We published our CommBank Wage and Labour Insights for September, which showed wages growth held steady at 0.8%/qtr and 3.3%/yr. Monthly wage growth moderated after rising in August, with the annualised pace easing from 3.5% to 3.3%. The temporary boost from July’s 4.75% increase in award and minimum wages appears to have been smaller than initially expected. Our Labour series also indicated ~20k jobs were added in September, slightly above the 19k recorded in August. This is around the breakeven rate needed to keep unemployment steady if participation is unchanged and is broadly consistent with the official ABS data. However, stronger labour supply has outpaced employment growth in recent months, contributing to the gradual rise in unemployment.
The NAB business survey showed confidence fell by 4pts in September to -13. This was the third consecutive monthly decline and the weakest result since May. Business conditions remained at -1, with a fall in the employment sub-index offset by modest improvements in trading conditions and profitability.
Offshore, uncertainty over both the US-Iran and Russia-Ukraine wars kept geopolitical risks elevated. In the Middle East, we continue to assess a diplomatic solution as the most likely outcome. However, the timing is highly uncertain, and the risk of military escalation is growing.
In the US, inflation printed on the firmer side. Headline CPI rose by 0.6%/mth in September, in line with expectations, while core inflation increased by 0.3%/mth, above the 0.2% consensus forecast. Producer prices and retail sales were also stronger than anticipated. However, Fed Officials continued to send mixed signals on the urgency for further tightening. We continue to expect the Fed to increase the Funds rate in December and March, with risks tilted towards an additional hike.
Closer to home, China’s producer price inflation accelerated to a stronger-than-expected 5.0%/yr, driven by higher energy prices and goods linked to AI investment. Consumer inflation remained much softer at 0.9%/yr. Elsewhere, Japanese producer prices unexpectedly fell by 0.3%/mth in September, with weakness across petroleum, machinery and agricultural products. We continue to see December as the next likely opportunity for the Bank of Japan to raise rates.
Turning attention to the week ahead, and RBA communication will be critical. RBA Deputy Governor Hauser will speak at Citi’s Australia & New Zealand Investment Conference in Sydney on Wednesday. This will be an opportunity for the Deputy Governor to fine-tune the messaging from the Board ahead of the November Meeting. Markets will be listening to assess the tone of Hauser’s remarks to weigh up the near-term chances of another rate hike given the September meeting Minutes were decisively hawkish compared to the Governor’s unscripted answers in the post-meeting press conference. This will also follow the weaker-than-expected labour force data released yesterday and be the final appearance from an RBA Board member ahead of the November meeting. Assistant Governor (Financial Markets) Chris Kent will also appear in a fireside chat at our CommBank Global Market’s conference.
Abroad, UK, New Zealand, Japanese and Canadian inflation data will be worth watching. Chinese Q3 GDP and UK labour market figures are also due.
