1 00:00:06,000 --> 00:00:08,080 Speaker 1: Well, welcome to Fear and Greed Q and A, where 2 00:00:08,080 --> 00:00:11,400 Speaker 1: we ask and answer questions about business, investing, economics, politics 3 00:00:11,400 --> 00:00:13,600 Speaker 1: and more. I'm Michael Thompson, and every Monday we take 4 00:00:13,600 --> 00:00:15,760 Speaker 1: a look at the week ahead for the economy. Diana 5 00:00:15,800 --> 00:00:19,040 Speaker 1: Messina is the Deputy Chief Economist at AMP. Diana, welcome 6 00:00:19,040 --> 00:00:20,239 Speaker 1: back to Fear and Greed Q and A. 7 00:00:20,800 --> 00:00:21,439 Speaker 2: Hey, Michael. 8 00:00:22,720 --> 00:00:27,400 Speaker 1: First to last week Reserve Bank Board meeting. Any surprises 9 00:00:27,440 --> 00:00:29,320 Speaker 1: for you in the decision? I mean, it was widely 10 00:00:29,360 --> 00:00:31,800 Speaker 1: expected the rates we're going to be on hold. What 11 00:00:31,920 --> 00:00:33,120 Speaker 1: did you make of the commentary? 12 00:00:34,280 --> 00:00:37,600 Speaker 2: The biggest interesting part of the meeting that I took 13 00:00:37,640 --> 00:00:42,239 Speaker 2: away was that the RBA has basically expected that the 14 00:00:42,600 --> 00:00:45,960 Speaker 2: increases to underlying inflation in the September quarter are going 15 00:00:45,960 --> 00:00:49,800 Speaker 2: to be repeated for the next basically nine months, and 16 00:00:49,840 --> 00:00:53,360 Speaker 2: now they're forecast for the trimmed mean, which is basically 17 00:00:53,440 --> 00:00:56,279 Speaker 2: the number that they target for inflation, is now expected 18 00:00:56,320 --> 00:00:58,720 Speaker 2: to stay above the target ban for most of next 19 00:00:58,800 --> 00:01:01,840 Speaker 2: year and only reach the midpoint of the target a 20 00:01:01,920 --> 00:01:04,880 Speaker 2: year later than they previously thought. So I was surprised, 21 00:01:05,280 --> 00:01:07,720 Speaker 2: I supposed to the extent that they thought that all 22 00:01:07,760 --> 00:01:10,800 Speaker 2: the factors that drove the September increase would continue to 23 00:01:10,800 --> 00:01:14,360 Speaker 2: be repeated because our view at AMP is that a 24 00:01:14,400 --> 00:01:17,240 Speaker 2: lot of them won't. And I think most economists are 25 00:01:17,280 --> 00:01:20,319 Speaker 2: sort of sitting somewhere in between what the RBA is thinking, 26 00:01:20,440 --> 00:01:22,520 Speaker 2: you know, our perspective on. 27 00:01:22,400 --> 00:01:27,120 Speaker 1: This, and so is that changing your thinking then at 28 00:01:27,120 --> 00:01:29,959 Speaker 1: all on whether we will still get another rate cut? 29 00:01:29,959 --> 00:01:32,120 Speaker 1: Are you still kind of leaning towards one more next year? 30 00:01:33,080 --> 00:01:35,880 Speaker 2: Well? See the difficulty is you know who's going to 31 00:01:35,880 --> 00:01:39,600 Speaker 2: be right us all the RBA. So that's that's that's 32 00:01:39,640 --> 00:01:41,800 Speaker 2: what I guess we're trying to grapple with. I mean, 33 00:01:41,840 --> 00:01:44,640 Speaker 2: our view on things has been that inflation is still 34 00:01:44,680 --> 00:01:47,360 Speaker 2: going to slow, and you know that's just not based 35 00:01:47,400 --> 00:01:50,080 Speaker 2: on nothing. It's based on forward looking indicators of inflation. 36 00:01:50,240 --> 00:01:53,040 Speaker 2: So we will look at food world food prices, we 37 00:01:53,080 --> 00:01:55,320 Speaker 2: look at commodity prices, we look at what pmis tell us, 38 00:01:55,320 --> 00:01:58,080 Speaker 2: we look at what business surveys tell us, and when 39 00:01:58,080 --> 00:02:01,600 Speaker 2: we put all that together, it's still pointing to softer 40 00:02:01,680 --> 00:02:04,240 Speaker 2: inflation in the next twelve months rather than this continued 41 00:02:04,320 --> 00:02:08,480 Speaker 2: uptick that we've had. So our view is that a 42 00:02:08,480 --> 00:02:10,960 Speaker 2: lot of the one offs that we had in September 43 00:02:11,200 --> 00:02:13,520 Speaker 2: are unlikely to be repeated to the same extent. And 44 00:02:13,960 --> 00:02:16,160 Speaker 2: I do think that some of the rebate chaines to 45 00:02:16,160 --> 00:02:22,000 Speaker 2: electricity are doing funny things to the inflation numbers and 46 00:02:22,080 --> 00:02:26,560 Speaker 2: make it seem higher. So if we're correct in our 47 00:02:26,680 --> 00:02:29,239 Speaker 2: view that inflation is going to soften, we think the 48 00:02:29,320 --> 00:02:31,520 Speaker 2: unemployment rate's going to be a bit higher. We still 49 00:02:31,520 --> 00:02:33,639 Speaker 2: think that there is the need for a cut next year, 50 00:02:33,720 --> 00:02:37,320 Speaker 2: but if the situation plays out as the RBA is expecting, well, 51 00:02:37,360 --> 00:02:40,040 Speaker 2: then it's very hard to see them cutting rates again. 52 00:02:40,760 --> 00:02:43,600 Speaker 1: I want to ask you about government spending because this 53 00:02:43,680 --> 00:02:45,919 Speaker 1: did come up last week when we found out that 54 00:02:47,040 --> 00:02:49,800 Speaker 1: government spending on public service wages and this is across 55 00:02:49,919 --> 00:02:52,560 Speaker 1: kind of all levels of government hit nearly two hundred 56 00:02:52,600 --> 00:02:55,960 Speaker 1: and fifty billion dollars last financial year, is up sixteen 57 00:02:55,960 --> 00:03:00,000 Speaker 1: percent over two years. There was some commentary in parliament. 58 00:03:00,360 --> 00:03:02,960 Speaker 1: I think the opposition was really pushing to try and 59 00:03:03,000 --> 00:03:05,560 Speaker 1: find out from the government whether the Treasurer felt the 60 00:03:05,600 --> 00:03:08,560 Speaker 1: government spending was driving inflation, and Jim Chalmers said that no, 61 00:03:08,720 --> 00:03:11,280 Speaker 1: the Reserve Bank was very clear in the course of 62 00:03:11,320 --> 00:03:14,360 Speaker 1: its decision that the government spending had nothing to do 63 00:03:14,400 --> 00:03:18,720 Speaker 1: with it. What does government spending mean for inflation? 64 00:03:20,400 --> 00:03:23,320 Speaker 2: Well, maybe government spending didn't mean anything for the September 65 00:03:23,360 --> 00:03:26,560 Speaker 2: quarter figures, But you need to look at this holistically. 66 00:03:27,040 --> 00:03:29,919 Speaker 2: The government is sort of like the household in that 67 00:03:30,120 --> 00:03:34,440 Speaker 2: if you spend more and have more money in the money, 68 00:03:34,440 --> 00:03:38,280 Speaker 2: supply and demand is running above supply and demands coming 69 00:03:38,320 --> 00:03:41,400 Speaker 2: from different parts of the government, and you're not allowing 70 00:03:42,400 --> 00:03:44,800 Speaker 2: enough resources to go to other parts of the economy 71 00:03:44,800 --> 00:03:48,000 Speaker 2: that needed, well, that's going to create an inflation problem. 72 00:03:48,200 --> 00:03:51,040 Speaker 2: So of course more government spending is part of the 73 00:03:51,160 --> 00:03:55,000 Speaker 2: inflation problem. It's not the only part. But to me, 74 00:03:55,040 --> 00:03:57,440 Speaker 2: it doesn't make sense for the government to say, you know, 75 00:03:57,520 --> 00:04:01,160 Speaker 2: we've had nothing to do with creating higher inflation. It's 76 00:04:01,200 --> 00:04:04,400 Speaker 2: what's happened in the whole economy and government spending. High 77 00:04:04,400 --> 00:04:07,040 Speaker 2: government spending is certainly part of that. We know that 78 00:04:07,080 --> 00:04:09,920 Speaker 2: the public sector has had very large wage gains in 79 00:04:09,960 --> 00:04:12,520 Speaker 2: the past few years. We know that non market jobs 80 00:04:12,560 --> 00:04:14,880 Speaker 2: growth has driven ninety percent of jobs growth in the 81 00:04:14,960 --> 00:04:18,400 Speaker 2: last twelve months. So if we know that all these 82 00:04:18,560 --> 00:04:21,360 Speaker 2: if these high wages are going to the non market sector, 83 00:04:21,560 --> 00:04:24,520 Speaker 2: well that's going to create high wages inflation, therefore higher 84 00:04:24,560 --> 00:04:28,400 Speaker 2: services inflation, and then that gets reflected in the trim mean. 85 00:04:29,000 --> 00:04:32,480 Speaker 1: Okay, all right, let's look to this week. Now. We've 86 00:04:32,520 --> 00:04:35,919 Speaker 1: got a few big things happening this week. Probably the 87 00:04:36,000 --> 00:04:38,560 Speaker 1: headline is the labor force dater coming out on Thursday. 88 00:04:38,600 --> 00:04:41,760 Speaker 1: We had a big jump last time to an unemployment 89 00:04:41,839 --> 00:04:44,359 Speaker 1: rate of four point five percent. What are you expecting 90 00:04:44,400 --> 00:04:45,159 Speaker 1: to see this time? 91 00:04:45,720 --> 00:04:47,600 Speaker 2: Well, the labor force figures on a month by month 92 00:04:47,680 --> 00:04:50,320 Speaker 2: basis are so bouncy. I mean, we used to call 93 00:04:50,360 --> 00:04:52,520 Speaker 2: it the labor force lottery to figure out what people 94 00:04:52,560 --> 00:04:54,960 Speaker 2: would forecast the numbers to be. Sort of if you 95 00:04:55,000 --> 00:04:57,760 Speaker 2: average out everyone's forecast, then the number might come out 96 00:04:57,800 --> 00:05:00,799 Speaker 2: as that. That's what happens when you have household survey 97 00:05:00,920 --> 00:05:04,480 Speaker 2: that's surveying different eight different groups of households and trying 98 00:05:04,600 --> 00:05:08,120 Speaker 2: to extrapolate that information for the whole population. It's going 99 00:05:08,160 --> 00:05:11,800 Speaker 2: to be quite bouncy. So it's pretty likely that the 100 00:05:11,839 --> 00:05:14,080 Speaker 2: unemployment rate's going to come down a little bit. It 101 00:05:14,120 --> 00:05:16,400 Speaker 2: had such a big jump last month. We think it's 102 00:05:16,440 --> 00:05:18,279 Speaker 2: going to come down to about four point four percent. 103 00:05:18,760 --> 00:05:20,720 Speaker 2: Jobs growth is likely to be positive, but we think 104 00:05:20,720 --> 00:05:22,680 Speaker 2: it's going to be sub twenty thousand a month, so 105 00:05:23,440 --> 00:05:26,400 Speaker 2: it's not bad, it's just softer jobs growth than what 106 00:05:26,480 --> 00:05:29,600 Speaker 2: we've had. The labor markets certainly not collapsing, but it's 107 00:05:29,720 --> 00:05:31,560 Speaker 2: weakened compared to where it was A yeo ago. 108 00:05:32,360 --> 00:05:35,039 Speaker 1: Is there anything in particular when that data comes out 109 00:05:35,040 --> 00:05:37,760 Speaker 1: that you are looking for there? Are you looking at 110 00:05:37,800 --> 00:05:40,000 Speaker 1: just that overall figure? Are you looking at full time 111 00:05:40,080 --> 00:05:43,640 Speaker 1: as part time jobs or underemployment? Is there anything that 112 00:05:43,720 --> 00:05:44,880 Speaker 1: you just go straight to? 113 00:05:45,640 --> 00:05:47,560 Speaker 2: I think the unemployment rate for me is the key. 114 00:05:47,600 --> 00:05:50,720 Speaker 2: It sort of takes out all the positives and negatives 115 00:05:50,800 --> 00:05:53,760 Speaker 2: in all those different indicators and gives you something that's 116 00:05:53,880 --> 00:05:56,840 Speaker 2: a bit realer to look at because jobs growth is 117 00:05:56,920 --> 00:05:59,680 Speaker 2: influenced by what happens to the population as well, and 118 00:05:59,720 --> 00:06:01,599 Speaker 2: we know that we still have pretty good growth in 119 00:06:01,640 --> 00:06:04,880 Speaker 2: our working age population because of net migration still running 120 00:06:04,880 --> 00:06:08,080 Speaker 2: at high levels. So even if you get a surprise 121 00:06:08,200 --> 00:06:12,280 Speaker 2: upside on employment, it doesn't necessarily mean that it's sign 122 00:06:12,320 --> 00:06:14,400 Speaker 2: of strong jobs growth because you have to think about, well, 123 00:06:14,440 --> 00:06:18,440 Speaker 2: what's population doing, what's labor force participation rate doing? So 124 00:06:18,560 --> 00:06:21,960 Speaker 2: I look to the unemployment rate. I think underemployment underutilization 125 00:06:22,120 --> 00:06:25,599 Speaker 2: is also quite important, but it's slower moving, so it's 126 00:06:25,960 --> 00:06:28,200 Speaker 2: that's more useful when you're looking at it over a 127 00:06:28,240 --> 00:06:29,279 Speaker 2: trand period. 128 00:06:29,839 --> 00:06:33,920 Speaker 1: Okay this week as well tomorrow. In fact, consumer sentiment 129 00:06:34,240 --> 00:06:36,760 Speaker 1: is coming out. How are we feeling, do you reckon? 130 00:06:37,080 --> 00:06:41,560 Speaker 2: Well, Australians are still saying that they're not feeling particularly optimistic. 131 00:06:41,600 --> 00:06:45,400 Speaker 2: I mean, consumer sentiment has definitely improved, but consumers on 132 00:06:45,440 --> 00:06:49,400 Speaker 2: average are still feeling negative about things. And I think 133 00:06:49,440 --> 00:06:53,159 Speaker 2: it's a reflection of inflation still being higher than where 134 00:06:53,200 --> 00:06:54,960 Speaker 2: it was a few years ago. But it's never going 135 00:06:55,040 --> 00:06:57,359 Speaker 2: to go back to Price levels are not going to 136 00:06:57,360 --> 00:06:59,880 Speaker 2: get back to their pre COVID levels, So the level 137 00:06:59,880 --> 00:07:02,040 Speaker 2: of prices that we pay for things is unfortunately going 138 00:07:02,080 --> 00:07:04,040 Speaker 2: to stay at these levels and go higher because that's 139 00:07:04,040 --> 00:07:06,920 Speaker 2: what inflation does. But the important thing is that the 140 00:07:07,360 --> 00:07:09,560 Speaker 2: pace of inflation is slowing, but it is hard for 141 00:07:09,600 --> 00:07:12,600 Speaker 2: people to understand that because you sort of compare what 142 00:07:12,640 --> 00:07:14,480 Speaker 2: you paid at the grocery store a few years ago 143 00:07:14,600 --> 00:07:17,840 Speaker 2: rather than you might not remember what you paid one 144 00:07:17,880 --> 00:07:20,080 Speaker 2: year ago or even six months ago. So I think 145 00:07:20,080 --> 00:07:21,760 Speaker 2: cost of living is still a big problem for people. 146 00:07:22,120 --> 00:07:23,840 Speaker 2: It's also inflation on things that they don't want to 147 00:07:23,880 --> 00:07:26,920 Speaker 2: pay more for, like the electricity prices because we've because 148 00:07:26,960 --> 00:07:31,840 Speaker 2: their rebates have finished, property rates rents, childcare, education, It's 149 00:07:31,880 --> 00:07:34,400 Speaker 2: all stuff that you think, oh, well, this is like, 150 00:07:35,040 --> 00:07:37,280 Speaker 2: this is not fun for me to spend my money on. 151 00:07:37,600 --> 00:07:40,360 Speaker 2: And I think that's why people are feeling a bit unhappy. 152 00:07:40,440 --> 00:07:44,560 Speaker 2: Global politics probably don't really help ease people's tensions either. 153 00:07:44,760 --> 00:07:47,680 Speaker 1: Yes, especially when there are endless headlines about how kind 154 00:07:47,680 --> 00:07:51,400 Speaker 1: of worried everybody is about everything overall. We'll get to 155 00:07:51,440 --> 00:07:53,400 Speaker 1: the US in a sec but I wanted to ask 156 00:07:53,440 --> 00:07:56,560 Speaker 1: you before we get there now, business survey as well. 157 00:07:57,000 --> 00:08:00,920 Speaker 1: We've had the consumer side business survey expecting. 158 00:08:00,560 --> 00:08:05,520 Speaker 2: To see it's really hard to forecast the business survey. 159 00:08:06,560 --> 00:08:11,320 Speaker 2: We've seen pretty weak numbers in confidence, although it's sort 160 00:08:11,360 --> 00:08:13,360 Speaker 2: of been bouncing back a little bit, but business conditions 161 00:08:13,360 --> 00:08:16,560 Speaker 2: have still been holding up. I think just looking at 162 00:08:16,600 --> 00:08:21,200 Speaker 2: the business conditions and profitability trading conditions. But the key 163 00:08:21,280 --> 00:08:24,280 Speaker 2: for us is looking at the cost indices in that 164 00:08:24,320 --> 00:08:26,520 Speaker 2: business survey. So you get a good reading on purchase cost, 165 00:08:26,640 --> 00:08:29,680 Speaker 2: labor costs, input costs, and that forms part of our 166 00:08:29,720 --> 00:08:33,080 Speaker 2: inflation view, and also the employment sub index of that 167 00:08:33,080 --> 00:08:35,559 Speaker 2: that we use that as part of a leading indicator 168 00:08:35,640 --> 00:08:38,360 Speaker 2: for the jobs market. So it's all those sub indices 169 00:08:38,400 --> 00:08:40,680 Speaker 2: to me that are important. 170 00:08:40,240 --> 00:08:45,520 Speaker 1: All right. I mentioned overseas, in particular the US now 171 00:08:45,559 --> 00:08:49,800 Speaker 1: into the it is now officially the longest ever government shutdown. 172 00:08:50,400 --> 00:08:54,520 Speaker 1: We're supposed to have inflation data coming out this week. 173 00:08:55,240 --> 00:08:56,319 Speaker 1: Are we going to get it? 174 00:08:57,280 --> 00:09:00,880 Speaker 2: I don't think we are. So what places like the 175 00:09:00,920 --> 00:09:04,480 Speaker 2: FED have been doing is looking at some of these 176 00:09:04,760 --> 00:09:09,360 Speaker 2: private sector Adobe Digital Price Index. They mentioned that in 177 00:09:09,640 --> 00:09:11,440 Speaker 2: their last meeting. I mean, it's sort of meant to 178 00:09:11,440 --> 00:09:15,120 Speaker 2: be an alternative to the CPI, but of course it's 179 00:09:15,160 --> 00:09:17,480 Speaker 2: not one for one, So I guess the FED can 180 00:09:17,559 --> 00:09:21,280 Speaker 2: use some of these alternative measures to think about the 181 00:09:21,320 --> 00:09:25,160 Speaker 2: outlook that we also have been getting ADP employment data, 182 00:09:25,240 --> 00:09:29,640 Speaker 2: so that's a private sector employment print challenger job cuts 183 00:09:29,640 --> 00:09:31,760 Speaker 2: as well, those who have been running a lot weaker 184 00:09:32,559 --> 00:09:35,040 Speaker 2: than the payrolls though. So there are these private sector 185 00:09:36,040 --> 00:09:38,679 Speaker 2: surveys that the FED can look to, but of course 186 00:09:39,160 --> 00:09:41,560 Speaker 2: it is quite hard without the CPI data and the 187 00:09:41,600 --> 00:09:42,360 Speaker 2: payroll data. 188 00:09:42,960 --> 00:09:45,600 Speaker 1: Yeah, still like trying to make decisions with one hand 189 00:09:45,800 --> 00:09:47,559 Speaker 1: tied behind your back, really, isn't it. I mean, that 190 00:09:47,880 --> 00:09:50,760 Speaker 1: would be a really difficult position to be in. And 191 00:09:50,880 --> 00:09:52,880 Speaker 1: China as well. A couple of bits and pieces coming 192 00:09:52,920 --> 00:09:57,560 Speaker 1: out this week, industrial production, property investment how much compared 193 00:09:57,600 --> 00:10:00,760 Speaker 1: to the US. How much time would you spend looking 194 00:10:00,760 --> 00:10:02,839 Speaker 1: at China compared to the States. 195 00:10:03,080 --> 00:10:05,760 Speaker 2: Oh, we spend a lot of time looking at the 196 00:10:05,840 --> 00:10:09,840 Speaker 2: US data, I mean the Chinese data. It normally comes 197 00:10:09,920 --> 00:10:12,160 Speaker 2: out relative close to four car so you sort of 198 00:10:12,360 --> 00:10:16,440 Speaker 2: kind of know what to expect. The GDP figures for 199 00:10:16,600 --> 00:10:19,400 Speaker 2: China probably the most important to US because it does 200 00:10:19,440 --> 00:10:22,560 Speaker 2: give you a pretty good breakdown of the components. And 201 00:10:22,679 --> 00:10:24,640 Speaker 2: the pm mys I think are a good leading guide 202 00:10:24,640 --> 00:10:28,320 Speaker 2: as well. But some of these monthly indicators we would 203 00:10:28,360 --> 00:10:30,560 Speaker 2: definitely wouldn't spend as much time as we would in 204 00:10:30,559 --> 00:10:33,720 Speaker 2: the US. It's still important, I mean, and to be honest, 205 00:10:33,760 --> 00:10:37,559 Speaker 2: we look at data for most major countries in Canada, 206 00:10:37,720 --> 00:10:41,360 Speaker 2: the UK, Europe. We have charts for everything and we 207 00:10:41,400 --> 00:10:43,800 Speaker 2: include all those in our publication. So we do look 208 00:10:43,800 --> 00:10:45,960 Speaker 2: at everything, but yeah, we don't spend as much time 209 00:10:46,000 --> 00:10:46,640 Speaker 2: on it. No. 210 00:10:46,800 --> 00:10:48,720 Speaker 1: Fair enough, all right, Diana, thank you for talking to 211 00:10:48,760 --> 00:10:49,320 Speaker 1: Fear and Greed. 212 00:10:49,920 --> 00:10:50,560 Speaker 2: Thanks Michael. 213 00:10:50,880 --> 00:10:53,959 Speaker 1: That was AMP Deputy Chief Economist, Diana Messina. I'm Michael 214 00:10:53,960 --> 00:10:55,800 Speaker 1: Thompson and this is Fear and Greed Q and a