1 00:00:07,890 --> 00:00:11,070 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. I'm Sean Aylmer, and as 2 00:00:11,070 --> 00:00:14,250 Sean Aylmer: always, I'm joined by economist Stephen Koukoulas. You'll find him 3 00:00:14,250 --> 00:00:16,829 Sean Aylmer: at thekouk. com, T- H- E- K- O- U- K. 4 00:00:17,400 --> 00:00:21,329 Sean Aylmer: com, and on Twitter using the handle TheKouk. Stephen, good morning. 5 00:00:21,720 --> 00:00:22,740 Stephen Koukoulas: And a good morning to you. 6 00:00:23,400 --> 00:00:25,860 Sean Aylmer: Has your nickname always been the The Kouk, Stephen Koukoulas? 7 00:00:26,489 --> 00:00:30,300 Stephen Koukoulas: Largely. I've been called worst things. But it was really my daughter who set it up 8 00:00:30,300 --> 00:00:34,019 Stephen Koukoulas: for me many, many years ago because, a long story, 9 00:00:34,019 --> 00:00:36,180 Stephen Koukoulas: but it was " Stephen at the Kouk." And when I 10 00:00:36,180 --> 00:00:38,700 Stephen Koukoulas: was setting up my little business, I thought, " That's cute 11 00:00:38,700 --> 00:00:42,239 Stephen Koukoulas: and funny," and I don't take economics too seriously, so 12 00:00:45,150 --> 00:00:48,420 Stephen Koukoulas: The Kouk, and as you know, I call it loud and straightened without fear or favor, so there we go. 13 00:00:48,598 --> 00:00:51,389 Sean Aylmer: It's pretty good. Not a lot this week, but let's 14 00:00:51,389 --> 00:00:53,070 Sean Aylmer: talk about last week because there were a couple of 15 00:00:53,070 --> 00:00:56,940 Sean Aylmer: really interesting bits of data as well as some information from 16 00:00:56,940 --> 00:00:59,130 Sean Aylmer: the Reserve Bank. We had the Reserve Bank minutes, we 17 00:00:59,130 --> 00:01:01,500 Sean Aylmer: had the wage price index last week, we also had 18 00:01:01,500 --> 00:01:04,679 Sean Aylmer: labor force stats where the unemployment rate jumped probably more 19 00:01:04,679 --> 00:01:08,009 Sean Aylmer: than people thought. What did you learn last week? 20 00:01:08,639 --> 00:01:12,958 Stephen Koukoulas: Yes. Going through the RBA minutes of their board meeting, remember 21 00:01:12,990 --> 00:01:15,449 Stephen Koukoulas: that was the one that shocked most of us in 22 00:01:15,450 --> 00:01:17,850 Stephen Koukoulas: the beginning of May with the 25 point hike when 23 00:01:18,420 --> 00:01:22,169 Stephen Koukoulas: virtually nothing was priced in. And so, reading why they 24 00:01:22,170 --> 00:01:25,230 Stephen Koukoulas: decided to hike rates was particularly interesting. And if we 25 00:01:25,230 --> 00:01:28,109 Stephen Koukoulas: boil it down, it was a close call. They acknowledged 26 00:01:28,109 --> 00:01:30,539 Stephen Koukoulas: that, they did debate between either keeping them on hold 27 00:01:30,569 --> 00:01:32,580 Stephen Koukoulas: and waiting for more information to come through on the 28 00:01:32,580 --> 00:01:35,490 Stephen Koukoulas: economy, or to go 25 points and hike them and 29 00:01:35,819 --> 00:01:39,480 Stephen Koukoulas: let the inflation rate tilt further down because of that 30 00:01:39,480 --> 00:01:42,750 Stephen Koukoulas: tightening policy. The issues were to do with, in no 31 00:01:42,750 --> 00:01:48,449 Stephen Koukoulas: particular order, some resilience in the labor market. They were saying that the labor market is strong 32 00:01:48,449 --> 00:01:51,390 Stephen Koukoulas: and wages growth was solid. They said the rebound in 33 00:01:51,390 --> 00:01:53,370 Stephen Koukoulas: house prices was something that was going to add to 34 00:01:53,370 --> 00:01:55,950 Stephen Koukoulas: household wealth if it continued, and that was going to 35 00:01:55,950 --> 00:01:59,010 Stephen Koukoulas: be an offset to the slowing in consumer spending that 36 00:01:59,010 --> 00:02:01,920 Stephen Koukoulas: we had been seeing. That was the other reason. And 37 00:02:01,920 --> 00:02:05,399 Stephen Koukoulas: they focused on services inflation. We know goods inflation is 38 00:02:05,400 --> 00:02:09,389 Stephen Koukoulas: coming down, so the supply chain issues which relate specifically 39 00:02:09,389 --> 00:02:12,540 Stephen Koukoulas: to goods, it was services inflation that was a little 40 00:02:12,540 --> 00:02:17,070 Stephen Koukoulas: bit more resilient. They thought, " We could hike once more 41 00:02:17,070 --> 00:02:20,370 Stephen Koukoulas: and try to just stamp that inflation risk out," and 42 00:02:20,490 --> 00:02:21,539 Stephen Koukoulas: that's what they did. 43 00:02:23,129 --> 00:02:25,980 Sean Aylmer: When you take the labor force stuff from last week 44 00:02:25,980 --> 00:02:27,661 Sean Aylmer: though, what's that telling us about the economy? 45 00:02:27,661 --> 00:02:31,260 Stephen Koukoulas: They were a surprise too, but to the downside. And it's 46 00:02:31,260 --> 00:02:34,200 Stephen Koukoulas: curious that the RBA did cite the tight labor market 47 00:02:34,200 --> 00:02:37,200 Stephen Koukoulas: as one of the reasons for their hiking decision. However, 48 00:02:37,230 --> 00:02:40,290 Stephen Koukoulas: what we saw for the wage price index, which is 49 00:02:40,889 --> 00:02:45,180 Stephen Koukoulas: a comprehensive measure of labor costs, it's not actually the 50 00:02:45,180 --> 00:02:47,310 Stephen Koukoulas: dollars and cents that you get in your pay packet, 51 00:02:47,310 --> 00:02:50,849 Stephen Koukoulas: it's more an inflation driver unit labor cost without getting 52 00:02:50,849 --> 00:02:54,690 Stephen Koukoulas: too particular. Anyway, it showed an increase in annual terms 53 00:02:54,690 --> 00:02:58,529 Stephen Koukoulas: to a 10, 11 year high of 3. 7%. But we 54 00:02:58,529 --> 00:03:01,950 Stephen Koukoulas: had the quarter on quarter figure coming in only at 0.8%. If you annualize the 0. 55 00:03:04,290 --> 00:03:06,030 Stephen Koukoulas: 8%, you're getting around about three and a quarter percent. 56 00:03:06,660 --> 00:03:09,420 Stephen Koukoulas: There was something for everyone in it in that wages have picked 57 00:03:09,540 --> 00:03:12,990 Stephen Koukoulas: up, but they're not accelerating to the point that would 58 00:03:12,990 --> 00:03:16,529 Stephen Koukoulas: cause anybody, including the Reserve Bank in my view, any 59 00:03:16,529 --> 00:03:19,470 Stephen Koukoulas: concern that wages were going to be feeding into inflation. 60 00:03:19,980 --> 00:03:23,760 Stephen Koukoulas: And then, on Thursday last, we saw the April Labor 61 00:03:23,760 --> 00:03:27,719 Stephen Koukoulas: Force data and, surprisingly, we saw a drop of employment 62 00:03:27,719 --> 00:03:30,900 Stephen Koukoulas: of about 4, 000 in the month. Now, month to 63 00:03:30,900 --> 00:03:33,570 Stephen Koukoulas: month, those numbers are incredibly volatile. And yes, we had 64 00:03:33,570 --> 00:03:37,020 Stephen Koukoulas: a big increase in the prior months. Maybe on reflection 65 00:03:37,050 --> 00:03:39,450 Stephen Koukoulas: there was some probability that we'd get a weak number, 66 00:03:39,450 --> 00:03:42,450 Stephen Koukoulas: however, not many people were forecasting it. That took the 67 00:03:42,450 --> 00:03:45,630 Stephen Koukoulas: markets by surprise. And as you touched on, the bigger 68 00:03:45,630 --> 00:03:48,149 Stephen Koukoulas: issue was the jump in the unemployment rate, 3. 7%. 69 00:03:49,139 --> 00:03:51,750 Stephen Koukoulas: At one level, that's pretty good still. Anything under 4% is 70 00:03:52,170 --> 00:03:55,950 Stephen Koukoulas: a good nice low unemployment rate for Australia. However, it's 71 00:03:55,950 --> 00:03:58,590 Stephen Koukoulas: gone up from 3. 4% towards the end of last 72 00:03:58,590 --> 00:04:01,470 Stephen Koukoulas: year. The trend is rising and, as we know, it's 73 00:04:01,470 --> 00:04:04,710 Stephen Koukoulas: a lagging indicator of the economy. If we've got more 74 00:04:04,710 --> 00:04:07,289 Stephen Koukoulas: evidence that the economy is cooling off, then we are 75 00:04:07,290 --> 00:04:09,780 Stephen Koukoulas: in the early stages, in my view, of the unemployment 76 00:04:09,780 --> 00:04:10,799 Stephen Koukoulas: rate moving higher. 77 00:04:11,639 --> 00:04:15,150 Sean Aylmer: Okay. This week, what's... Out of interest, retail sales, that'll 78 00:04:15,150 --> 00:04:15,930 Sean Aylmer: be an interesting one. 79 00:04:16,200 --> 00:04:19,050 Stephen Koukoulas: Yes, the only item of note in the domestic data 80 00:04:19,050 --> 00:04:21,359 Stephen Koukoulas: set is the retail sales number for the month of 81 00:04:21,480 --> 00:04:24,630 Stephen Koukoulas: April. Now, we've got to check this number with a 82 00:04:24,630 --> 00:04:27,930 Stephen Koukoulas: huge amount of caution as we always do. The ABS 83 00:04:28,320 --> 00:04:31,260 Stephen Koukoulas: try to seasonally adjust it. But the timing of Easter, 84 00:04:31,469 --> 00:04:34,589 Stephen Koukoulas: and we know Anzac, and I know that is there every year, 85 00:04:34,589 --> 00:04:37,589 Stephen Koukoulas: but there's still a change in spending patterns that occurs 86 00:04:37,589 --> 00:04:40,678 Stephen Koukoulas: in the retail sector with Easter, with Anzac Day, public 87 00:04:40,678 --> 00:04:44,909 Stephen Koukoulas: holidays and these things. However, it's pretty clear, from the 88 00:04:44,910 --> 00:04:47,879 Stephen Koukoulas: bank internal data on their credit card transactions and the 89 00:04:47,879 --> 00:04:50,460 Stephen Koukoulas: like, that it's going to be a soft result. The 90 00:04:50,460 --> 00:04:53,880 Stephen Koukoulas: market's probably looking for about flat in dollar terms for 91 00:04:53,880 --> 00:04:57,000 Stephen Koukoulas: the month of April. Anything weaker than that will confirm 92 00:04:57,000 --> 00:04:59,670 Stephen Koukoulas: that we consumers are hunkering down, the economy is slowing 93 00:04:59,670 --> 00:05:02,490 Stephen Koukoulas: down and, dare I say, cost of living pressures are 94 00:05:03,210 --> 00:05:07,380 Stephen Koukoulas: causing a rejigging of our spending patents. And of course, 95 00:05:07,380 --> 00:05:10,170 Stephen Koukoulas: interest rate hikes are causing us to have less money 96 00:05:10,170 --> 00:05:12,480 Stephen Koukoulas: to spend in the retail sector. Yes, it'll be a 97 00:05:12,480 --> 00:05:14,099 Stephen Koukoulas: soft result. It's a question of how soft will it be. 98 00:05:16,110 --> 00:05:18,359 Sean Aylmer: It's not necessarily a bad thing though, is it, if 99 00:05:18,360 --> 00:05:20,700 Sean Aylmer: we actually start spending a little less? 100 00:05:22,049 --> 00:05:24,839 Stephen Koukoulas: That's how interest rates work. The Reserve Bank would be 101 00:05:25,320 --> 00:05:28,260 Stephen Koukoulas: very happy to see the slower growth coming through. One 102 00:05:28,260 --> 00:05:30,510 Stephen Koukoulas: of the reasons why they've been hiking is to slow 103 00:05:30,510 --> 00:05:32,880 Stephen Koukoulas: the economy down, to get inflation going down. And in 104 00:05:32,880 --> 00:05:35,490 Stephen Koukoulas: fact, when you think about it, if retail sales are 105 00:05:35,910 --> 00:05:39,058 Stephen Koukoulas: weak again, let's say, you are a retailer, be it 106 00:05:39,570 --> 00:05:43,320 Stephen Koukoulas: a big grocery supplier or even the corner store if 107 00:05:43,320 --> 00:05:45,870 Stephen Koukoulas: you like, that if people aren't coming into your shop, 108 00:05:45,870 --> 00:05:49,320 Stephen Koukoulas: then your willingness and ability to pass on higher prices 109 00:05:49,320 --> 00:05:52,469 Stephen Koukoulas: is not there, you may even consider discounting to clear 110 00:05:52,469 --> 00:05:55,710 Stephen Koukoulas: your inventory or something, and by definition, that is lower 111 00:05:55,710 --> 00:06:00,029 Stephen Koukoulas: inflation. That's the mechanism. The RBA will be hoping, internally 112 00:06:00,029 --> 00:06:03,060 Stephen Koukoulas: anyway, that we see a soft retail sales number because 113 00:06:03,060 --> 00:06:06,630 Stephen Koukoulas: that actually helps them in their quest to get inflation 114 00:06:06,750 --> 00:06:08,820 Stephen Koukoulas: lower. Now, they don't want a recession, but they just 115 00:06:08,820 --> 00:06:12,450 Stephen Koukoulas: want us to pair back our spending. And that appears 116 00:06:12,450 --> 00:06:13,590 Stephen Koukoulas: to be what we are doing. 117 00:06:14,309 --> 00:06:16,020 Sean Aylmer: That's good news, Stephen. Have a great week. 118 00:06:16,500 --> 00:06:17,369 Stephen Koukoulas: Thank you, Sean. You too. 119 00:06:17,879 --> 00:06:20,640 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. You can 120 00:06:20,640 --> 00:06:24,120 Sean Aylmer: find at thekouk. com and follow him on Twitter using 121 00:06:24,120 --> 00:06:26,638 Sean Aylmer: the handle TheKouk. I'm Sean Aylmer, and this is Fear 122 00:06:26,639 --> 00:06:27,630 Sean Aylmer: and Greed - The Week Ahead.