1 00:00:05,760 --> 00:00:09,300 Sean Aylmer: Welcome to the Fear & Greed Business Interview. I'm Sean Aylmer. Unemployment 2 00:00:09,300 --> 00:00:13,350 Sean Aylmer: rose slightly in March to 3.8%, better than market expectations. 3 00:00:13,650 --> 00:00:17,309 Sean Aylmer: Many economists had been expecting a larger jump. That's particularly 4 00:00:17,309 --> 00:00:19,860 Sean Aylmer: after the big fall in February. So what's it mean 5 00:00:19,860 --> 00:00:22,500 Sean Aylmer: for wages and for interest rates? And what about the 6 00:00:22,500 --> 00:00:24,989 Sean Aylmer: confirmation from the US Fed this week that rates are 7 00:00:24,989 --> 00:00:27,900 Sean Aylmer: going to stay higher for longer? Plenty to discuss. Stephen 8 00:00:27,960 --> 00:00:31,920 Sean Aylmer: Halmarick is Commonwealth Bank's Chief Economist. Stephen, welcome back to 9 00:00:31,920 --> 00:00:32,610 Sean Aylmer: Fear & Greed. 10 00:00:32,848 --> 00:00:33,900 Stephen Halmarick: My pleasure. Thanks, Sean. 11 00:00:34,529 --> 00:00:38,100 Sean Aylmer: First to yesterday's unemployment numbers, the labor force stats from 12 00:00:38,100 --> 00:00:40,888 Sean Aylmer: the Bureau, was it better than you were expecting? What 13 00:00:40,890 --> 00:00:41,550 Sean Aylmer: do you make of them? 14 00:00:42,330 --> 00:00:44,729 Stephen Halmarick: Well, it was actually pretty close to our forecast. We 15 00:00:44,729 --> 00:00:47,790 Stephen Halmarick: were looking for unchained employment on the month, and it 16 00:00:47,790 --> 00:00:51,119 Stephen Halmarick: was down, just on a bit over six and a 17 00:00:51,120 --> 00:00:54,720 Stephen Halmarick: half thousand. And we were thinking the unemployment rate might 18 00:00:54,720 --> 00:00:58,020 Stephen Halmarick: go from 3. 7% back up to 3. 9%, but 19 00:00:58,020 --> 00:01:00,390 Stephen Halmarick: as you said, it was 3. 8%. But, actually, to 20 00:01:00,390 --> 00:01:03,990 Stephen Halmarick: the second decimal place, it was 3. 84%. So I'm 21 00:01:03,990 --> 00:01:06,238 Stephen Halmarick: going to say that was very close to our forecast. 22 00:01:06,690 --> 00:01:08,880 Sean Aylmer: Okay. What do you make of the labor market? It just 23 00:01:08,880 --> 00:01:11,339 Sean Aylmer: seems stronger than we expected it to be. 24 00:01:12,300 --> 00:01:15,119 Stephen Halmarick: Yeah. So if you look at the economic growth numbers, 25 00:01:15,120 --> 00:01:18,660 Stephen Halmarick: the GDP numbers, they would suggest that the labor market 26 00:01:19,050 --> 00:01:21,810 Stephen Halmarick: should have been weaker than it's been over recent months. 27 00:01:23,010 --> 00:01:25,799 Stephen Halmarick: The February employment report was particularly strong, so a little 28 00:01:25,799 --> 00:01:30,059 Stephen Halmarick: bit of a payback in March. So the labor market's 29 00:01:30,059 --> 00:01:34,620 Stephen Halmarick: loosening, but loosening very slowly. We expect that process to 30 00:01:34,620 --> 00:01:37,920 Stephen Halmarick: continue throughout the course of this year because bottom line 31 00:01:37,920 --> 00:01:41,970 Stephen Halmarick: is economic growth is lower than trend. We're not creating 32 00:01:42,090 --> 00:01:45,420 Stephen Halmarick: enough jobs every month to account for the increase in 33 00:01:45,420 --> 00:01:48,869 Stephen Halmarick: the labor force, due to population growth. So the unemployment 34 00:01:48,870 --> 00:01:52,051 Stephen Halmarick: rate should continue to drift higher, but it's happening pretty gradually. 35 00:01:52,051 --> 00:01:57,509 Sean Aylmer: Why is that, though? Why has the labor market surprised everyone on the 36 00:01:57,510 --> 00:02:01,739 Sean Aylmer: upside? Why is it taking so long to lose jobs? 37 00:02:02,460 --> 00:02:04,859 Stephen Halmarick: Well, I think the question there is, where are the 38 00:02:04,859 --> 00:02:07,920 Stephen Halmarick: jobs being created? And if you look at the industries 39 00:02:08,310 --> 00:02:11,850 Stephen Halmarick: where the biggest increase in jobs has been, by far, 40 00:02:11,880 --> 00:02:15,660 Stephen Halmarick: the biggest increase is in health and aged care. And we've been 41 00:02:15,840 --> 00:02:18,419 Stephen Halmarick: looking at some data which shows, over quite a number 42 00:02:18,419 --> 00:02:20,940 Stephen Halmarick: of years, the increase in the number of health related 43 00:02:20,940 --> 00:02:25,050 Stephen Halmarick: jobs in Australia was very similar to other countries, like 44 00:02:25,050 --> 00:02:28,530 Stephen Halmarick: the US and Canada. And then, a few years ago, 45 00:02:28,530 --> 00:02:31,830 Stephen Halmarick: we started increasing our health jobs much faster than the 46 00:02:31,830 --> 00:02:34,650 Stephen Halmarick: other countries. And that's really aligned with the start of 47 00:02:34,650 --> 00:02:38,488 Stephen Halmarick: the NDIS. So health is the largest increase in jobs 48 00:02:39,089 --> 00:02:41,370 Stephen Halmarick: over the last year or so. And the second largest is 49 00:02:41,430 --> 00:02:47,160 Stephen Halmarick: utilities, water, electricity, energy. So a different pattern than we're 50 00:02:47,160 --> 00:02:49,950 Stephen Halmarick: seeing in other countries, where really health and utility jobs 51 00:02:50,280 --> 00:02:52,230 Stephen Halmarick: have been the big driver. And when you look at 52 00:02:52,230 --> 00:02:56,130 Stephen Halmarick: other sectors, like services, and hospitality, and food and beverage, 53 00:02:56,130 --> 00:03:00,660 Stephen Halmarick: and agri, and manufacturing, the growth in jobs is much weaker. 54 00:03:01,320 --> 00:03:04,559 Sean Aylmer: That's interesting. So maybe it's actually a government policy decision 55 00:03:04,560 --> 00:03:08,070 Sean Aylmer: a few years back which is just changing the trajectory 56 00:03:08,309 --> 00:03:11,548 Sean Aylmer: of the employment market in this particular economic cycle. 57 00:03:12,000 --> 00:03:14,219 Stephen Halmarick: Yes, I think that's right. And the other thing to 58 00:03:14,219 --> 00:03:18,330 Stephen Halmarick: highlight is the number of people with multiple jobs has 59 00:03:18,330 --> 00:03:24,540 Stephen Halmarick: also increased substantially, through COVID and post-COVID. And that's probably a reflection 60 00:03:24,540 --> 00:03:27,389 Stephen Halmarick: of the cost of living issue. Cost of living has 61 00:03:27,389 --> 00:03:30,269 Stephen Halmarick: gone up, so many people are deciding that they need 62 00:03:30,540 --> 00:03:32,850 Stephen Halmarick: a couple of jobs to handle that increase in the cost of living. 63 00:03:32,850 --> 00:03:36,690 Sean Aylmer: So at the end of the day, it's good news. We want people 64 00:03:36,690 --> 00:03:39,660 Sean Aylmer: to have jobs. But, obviously, there are implications for interest 65 00:03:39,660 --> 00:03:42,660 Sean Aylmer: rates, which we'll come to in a moment. What's the, 66 00:03:42,750 --> 00:03:45,929 Sean Aylmer: well, the economists might call it the Nehru, but the 67 00:03:45,929 --> 00:03:49,049 Sean Aylmer: rate of unemployment? Which you want to not make it 68 00:03:49,049 --> 00:03:51,509 Sean Aylmer: too hot, not make it too cold, just right. What 69 00:03:51,509 --> 00:03:52,470 Sean Aylmer: is that unemployment rate? 70 00:03:52,920 --> 00:03:55,440 Stephen Halmarick: Well, that's the big question, Sean, and no one really 71 00:03:55,440 --> 00:03:59,160 Stephen Halmarick: knows where it is, including the Reserve Bank. But our 72 00:03:59,160 --> 00:04:03,150 Stephen Halmarick: forecast is for the unemployment rate to rise to 4.5% at 73 00:04:03,150 --> 00:04:05,130 Stephen Halmarick: the end of this year. And we think that'll be 74 00:04:05,130 --> 00:04:08,549 Stephen Halmarick: pretty close to the Nehru. We do think the pace 75 00:04:08,549 --> 00:04:12,059 Stephen Halmarick: of wages growth will soften a bit this year as 76 00:04:12,059 --> 00:04:17,099 Stephen Halmarick: the inflation rate also continues to decelerate. So around 4.5% 77 00:04:18,330 --> 00:04:20,550 Stephen Halmarick: is probably pretty close to the Nehru. 78 00:04:21,029 --> 00:04:22,618 Sean Aylmer: Stay with me, Stephen, and we'll be back in a 79 00:04:22,620 --> 00:04:33,870 Sean Aylmer: minute. I'm speaking to Stephen Halmarick, Commonwealth Bank's Chief Economist. 80 00:04:35,130 --> 00:04:36,928 Sean Aylmer: Okay, so let's talk about interest rates and what the 81 00:04:36,930 --> 00:04:41,428 Sean Aylmer: Reserve Bank will do. Yesterday's number, well, it doesn't add 82 00:04:41,428 --> 00:04:43,678 Sean Aylmer: to the argument to cut rates, that's for sure, but 83 00:04:43,678 --> 00:04:47,489 Sean Aylmer: is it basically about the CPI figures next week? Is that 84 00:04:47,850 --> 00:04:49,440 Sean Aylmer: all important, compared to yesterday? 85 00:04:50,610 --> 00:04:54,960 Stephen Halmarick: Well, certainly, the inflation numbers are really the critical component 86 00:04:54,960 --> 00:04:57,510 Stephen Halmarick: for the RBA's decision in early May and beyond that. 87 00:04:58,139 --> 00:05:01,198 Stephen Halmarick: I think the employment report did go a little bit 88 00:05:01,200 --> 00:05:03,178 Stephen Halmarick: of a way to say, well, actually the labor market 89 00:05:03,178 --> 00:05:06,270 Stephen Halmarick: is continuing to soften, but it's pretty slow, as we 90 00:05:06,330 --> 00:05:09,690 Stephen Halmarick: said. But the inflation numbers next week are really critical. 91 00:05:10,020 --> 00:05:13,320 Stephen Halmarick: We're going for 0. 7% on the quarter for the 92 00:05:13,470 --> 00:05:16,860 Stephen Halmarick: CPI. So they'll take the annual rate of inflation down 93 00:05:16,860 --> 00:05:21,450 Stephen Halmarick: to 3.4% from 4.1% at the end of last year. And the 94 00:05:21,450 --> 00:05:24,209 Stephen Halmarick: trimmed mean, we're looking for an annual increase of about 95 00:05:24,209 --> 00:05:29,550 Stephen Halmarick: 3.7%. So the inflation rate's continuing to decelerate. And I 96 00:05:29,550 --> 00:05:34,260 Stephen Halmarick: think the important thing on that 3.4% CPI number is 97 00:05:34,260 --> 00:05:38,009 Stephen Halmarick: that is a touch lower than the Reserve Bank's forecast, 98 00:05:38,490 --> 00:05:41,609 Stephen Halmarick: which was 3.5%. So in contrast to what's happening in 99 00:05:41,609 --> 00:05:46,020 Stephen Halmarick: the US and, actually, in New Zealand, where the inflation 100 00:05:46,020 --> 00:05:48,840 Stephen Halmarick: numbers have come in higher than their central bank's forecast, 101 00:05:49,290 --> 00:05:51,359 Stephen Halmarick: our inflation numbers look like they're going to continue to 102 00:05:51,360 --> 00:05:54,420 Stephen Halmarick: be a little bit lower than the RBA's forecast, although 103 00:05:54,630 --> 00:05:55,410 Stephen Halmarick: marginally so. 104 00:05:56,010 --> 00:05:59,820 Sean Aylmer: Does it that, well, the Reserve Bank Governor, Michele Bullock, 105 00:05:59,820 --> 00:06:01,890 Sean Aylmer: at her last press conference, or the one before, was 106 00:06:01,890 --> 00:06:04,589 Sean Aylmer: asked whether or not she'd cut rates before the Reserve 107 00:06:04,589 --> 00:06:07,529 Sean Aylmer: Bank inflation hit the 2% to 3% target band. And 108 00:06:07,529 --> 00:06:10,110 Sean Aylmer: she said, " Yep, if we think that it's going to 109 00:06:10,110 --> 00:06:13,529 Sean Aylmer: hit the 2% to 3% target band, we'll cut." Given 110 00:06:13,529 --> 00:06:15,750 Sean Aylmer: what's happened in the US and New Zealand, as you 111 00:06:15,750 --> 00:06:17,639 Sean Aylmer: say, do you think that she might be a bit 112 00:06:17,639 --> 00:06:20,430 Sean Aylmer: more tentative about that? Particularly if you get a 3.4% 113 00:06:20,430 --> 00:06:23,789 Sean Aylmer: rate, you might have arguments to cut rates. 114 00:06:24,240 --> 00:06:27,029 Stephen Halmarick: Yeah, so our base case is first rate cut from 115 00:06:27,029 --> 00:06:29,849 Stephen Halmarick: the RBA in September. And, by then, we would've had 116 00:06:29,849 --> 00:06:33,209 Stephen Halmarick: the June quarter CPI, which we think'll be a little bit 117 00:06:33,210 --> 00:06:36,119 Stephen Halmarick: closer to 3%, a bit lower than the 3.4% for the 118 00:06:36,119 --> 00:06:39,029 Stephen Halmarick: March quarter. And then, later in the year, we think, 119 00:06:39,029 --> 00:06:40,440 Stephen Halmarick: by the end of this year, it'll be pretty much 120 00:06:40,440 --> 00:06:44,219 Stephen Halmarick: bang on 3%. So as you said, Michele Bullock says, " 121 00:06:44,700 --> 00:06:47,188 Stephen Halmarick: Well, we can cut rates before we get into the 122 00:06:47,190 --> 00:06:50,519 Stephen Halmarick: target." But then the caveat was, if we're really confident 123 00:06:50,520 --> 00:06:52,650 Stephen Halmarick: in our forecast that we're about to hit the target. 124 00:06:53,190 --> 00:06:56,550 Stephen Halmarick: Now, if global inflation, as measured particularly by the US, 125 00:06:56,550 --> 00:07:00,540 Stephen Halmarick: is higher than expected over the next six months, then 126 00:07:00,540 --> 00:07:03,900 Stephen Halmarick: that could limit the RBA's options. But our base case 127 00:07:03,900 --> 00:07:07,289 Stephen Halmarick: now is the US Federal Reserve starts cutting interest rates 128 00:07:07,290 --> 00:07:10,440 Stephen Halmarick: in September also. So we've moved that from July to 129 00:07:10,440 --> 00:07:14,520 Stephen Halmarick: September. And as the timing goes, the US Fed meeting 130 00:07:14,520 --> 00:07:17,760 Stephen Halmarick: is the week before the RBA board meeting in September. 131 00:07:18,690 --> 00:07:21,929 Stephen Halmarick: So on our current base case, the Fed eases the 132 00:07:21,929 --> 00:07:24,660 Stephen Halmarick: middle of September and we ease the week later. Now, 133 00:07:24,660 --> 00:07:28,500 Stephen Halmarick: there's five CPIs between now and the US Fed September 134 00:07:28,500 --> 00:07:31,230 Stephen Halmarick: board meeting. And at least three of those five are 135 00:07:31,230 --> 00:07:32,580 Stephen Halmarick: going to have to be a lot lower than what 136 00:07:32,580 --> 00:07:34,590 Stephen Halmarick: we've seen so far this year for the Fed to 137 00:07:34,590 --> 00:07:36,540 Stephen Halmarick: actually go through with that rate cut. 138 00:07:37,500 --> 00:07:39,689 Sean Aylmer: As an economist, when you're looking at the employment figures 139 00:07:39,690 --> 00:07:43,259 Sean Aylmer: over the last six months in Australia, CPI, and then the inflation 140 00:07:43,259 --> 00:07:46,080 Sean Aylmer: figures in the US are a better example than our 141 00:07:46,080 --> 00:07:48,600 Sean Aylmer: inflation figures, how do you actually work out what's going 142 00:07:48,600 --> 00:07:50,040 Sean Aylmer: on, given the noise? 143 00:07:50,430 --> 00:07:52,590 Stephen Halmarick: Well, there's a lot going on, I guess is the 144 00:07:52,590 --> 00:07:56,099 Stephen Halmarick: way to put it. But I think, here in Australia, 145 00:07:56,099 --> 00:07:58,380 Stephen Halmarick: when we look at the national accounts numbers, particularly for 146 00:07:58,380 --> 00:08:02,160 Stephen Halmarick: the second half of 2023, they were pretty soft. Growth was 0. 147 00:08:02,160 --> 00:08:07,680 Stephen Halmarick: 2% in the December quarter, 1.5% annual. What we can 148 00:08:07,680 --> 00:08:11,550 Stephen Halmarick: see... And really driven by a soft consumer. And what 149 00:08:11,550 --> 00:08:15,360 Stephen Halmarick: we can see from our own Commonwealth Bank internally generated 150 00:08:15,360 --> 00:08:18,210 Stephen Halmarick: data is the consumer has also been very soft in 151 00:08:18,210 --> 00:08:21,540 Stephen Halmarick: the first quarter of this year. So the annual rate 152 00:08:21,540 --> 00:08:23,819 Stephen Halmarick: of growth is going to continue to moderate, we think, 153 00:08:23,820 --> 00:08:26,310 Stephen Halmarick: over the first half of this year. Now, there's a 154 00:08:26,310 --> 00:08:29,340 Stephen Halmarick: lot of statistical noise, particularly with the employment numbers and, as you 155 00:08:29,460 --> 00:08:32,519 Stephen Halmarick: said, the inflation. But when you look at, if you 156 00:08:32,520 --> 00:08:35,370 Stephen Halmarick: like, the string of data, quite a number of months' 157 00:08:35,370 --> 00:08:39,599 Stephen Halmarick: worth of data, the pattern here is the higher interest rates 158 00:08:39,599 --> 00:08:43,170 Stephen Halmarick: are slowing the pace of economic growth, that eventually will 159 00:08:43,170 --> 00:08:47,429 Stephen Halmarick: continue to slow the rate of inflation, increase the unemployment 160 00:08:47,429 --> 00:08:50,098 Stephen Halmarick: rate marginally. And then we think the Reserve Bank can 161 00:08:50,099 --> 00:08:52,708 Stephen Halmarick: start getting back to a more neutral position on monetary 162 00:08:52,710 --> 00:08:55,320 Stephen Halmarick: policy, rather than the quite tight position we've got at 163 00:08:55,320 --> 00:08:55,710 Stephen Halmarick: the moment. 164 00:08:56,040 --> 00:08:59,369 Sean Aylmer: So the central case, Stephen Halmarick, Chief Economist at the 165 00:08:59,369 --> 00:09:03,300 Sean Aylmer: Commonwealth Bank, is September here in Australia. If there's a 166 00:09:03,300 --> 00:09:05,970 Sean Aylmer: bias one way or another, is that later? 167 00:09:06,870 --> 00:09:10,080 Stephen Halmarick: Yes. I think, given the run of data globally, the 168 00:09:10,080 --> 00:09:12,989 Stephen Halmarick: bias probably is a bit later, rather than earlier. But 169 00:09:14,400 --> 00:09:16,349 Stephen Halmarick: here we are in the middle of April, September's still 170 00:09:16,350 --> 00:09:18,299 Stephen Halmarick: quite a few months away. So there's a lot of 171 00:09:18,330 --> 00:09:21,690 Stephen Halmarick: data between now and then. And even as we've seen 172 00:09:21,690 --> 00:09:25,710 Stephen Halmarick: this year, markets and data can move very quickly. In 173 00:09:25,710 --> 00:09:28,230 Stephen Halmarick: January this year, the markets were pricing for a US 174 00:09:28,230 --> 00:09:31,110 Stephen Halmarick: rate cut in March, and now they're pricing for September. 175 00:09:31,889 --> 00:09:35,009 Stephen Halmarick: So things can move around quite a lot, depending on 176 00:09:35,010 --> 00:09:37,710 Stephen Halmarick: the data flow. But we do think, as you said, 177 00:09:37,710 --> 00:09:40,260 Stephen Halmarick: base case is September for both the Fed and the 178 00:09:40,260 --> 00:09:41,460 Stephen Halmarick: RBA for the first rate cut. 179 00:09:42,210 --> 00:09:43,740 Sean Aylmer: Stephen, I have to ask you, how do you think 180 00:09:43,740 --> 00:09:46,050 Sean Aylmer: Michele Bullock's going? And I'm not even talking about monetary 181 00:09:46,050 --> 00:09:48,959 Sean Aylmer: policy. I'm talking about being governor in a new world, 182 00:09:48,960 --> 00:09:51,630 Sean Aylmer: with press conferences and lots more debate about it and 183 00:09:51,630 --> 00:09:52,348 Sean Aylmer: things like that. 184 00:09:52,799 --> 00:09:56,280 Stephen Halmarick: I would say very good. I think the communication's been 185 00:09:56,280 --> 00:10:01,140 Stephen Halmarick: very clear, very open. The press conferences are very well 186 00:10:01,140 --> 00:10:04,799 Stephen Halmarick: received. So, so far, I think, yeah, very good. 187 00:10:05,190 --> 00:10:07,350 Sean Aylmer: Fantastic. Stephen, thank you for talking to Fear & Greed. 188 00:10:07,710 --> 00:10:08,910 Stephen Halmarick: My pleasure. Thanks, Sean. 189 00:10:09,270 --> 00:10:12,059 Sean Aylmer: That was Stephen Halmarick, Chief Economist at the Commonwealth Bank. 190 00:10:12,059 --> 00:10:14,580 Sean Aylmer: This is the Fear & Greed Business Interview. Join us every 191 00:10:14,580 --> 00:10:17,220 Sean Aylmer: morning for the full episode of Fear & Greed, daily business 192 00:10:17,220 --> 00:10:19,740 Sean Aylmer: news for people who make their own decisions. I'm Sean 193 00:10:19,740 --> 00:10:21,030 Sean Aylmer: Aylmer. Enjoy your day.