Some bearish market economists are pricing in one or two interest rate cuts this year, though the RBA does not share this pessimistic view.
Lowe takes heart from all the signs showing that the labour market is healthy.
Plenty of positives
Positives include a national jobless rate of 5 per cent, NSW’s unemployment rate of 3.9 per cent at the lowest level since the 1970s, high job vacancy rates, healthy business hiring intentions and skills shortages in areas like construction and IT that employers are reporting to the RBA and Treasury.
“The labour market data suggest the economy is growing quite well,” Lowe says.
Hence, the central bank is not yet demurring from its central case scenario that the strong labour market will ultimately ride out the softness in economic output and the economy will pull through.
The key, as Lowe says, will be spurring wage growth to help offset subdued consumer spending and falling housing construction, to complement a recovery in business investment and the pipeline of federal and state government infrastructure projects.
With a per capita “recession” – two consecutive quarters of contraction in per capita GDP – lifting productivity and wages will be crucial.
Non-farm productivity growth has been almost zero for the past two years, though this data will be subject to revision in the updated annual national accounts.
Digging into discrepancies
The RBA will also likely be digging into discrepancies within the Australian Bureau of Statistics national accounts that show a dichotomy between the three different measurements of annual GDP that average out to 2.3 per cent.
Annual expenditure GDP is a healthy 3.1 per cent, production GDP is tolerable at 2.2 per cent and income GDP is a weak 1.7 per cent.
“The puzzle we’re grappling with at the moment is where’s the associated spending in output? Businesses are employing more people and people are getting bigger wage increases, but it doesn’t seem to be showing up either in the spending or output figures,” Lowe told The Australian Financial Review Business Summit in Sydney.
In other words, is business really paying thousands of extra workers but then not utilising labour to produce much?
Some of the difference is due to time lags and measurement issues. Yet income weakness can’t be fully explained by soft household income and is not mirrored by strong personal income tax collections.
Lowe will be hoping the statistical incongruity is ultimately resolved in his favour and that economic growth figures catch up to the resilient job market.
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