1 00:00:08,010 --> 00:00:11,099 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. I'm Sean Aylmer, and as 2 00:00:11,099 --> 00:00:13,110 Sean Aylmer: always at this time on a Monday morning, I'm joined 3 00:00:13,110 --> 00:00:18,359 Sean Aylmer: by economist Stephen Koukoulas. You'll find him at thekouk. com, T- H- E- K- O- U- 4 00:00:18,360 --> 00:00:21,900 Sean Aylmer: K, thekouk. com, and on X using the handle @ thekouk. 5 00:00:22,259 --> 00:00:23,580 Sean Aylmer: Stephen, good morning. 6 00:00:24,090 --> 00:00:25,290 Stephen Koukoulas: A very good morning, Sean. 7 00:00:25,770 --> 00:00:29,819 Sean Aylmer: So after a fairly ferocious few weeks, things have slowed 8 00:00:29,820 --> 00:00:32,850 Sean Aylmer: down just a touch last week and this week for 9 00:00:33,179 --> 00:00:36,449 Sean Aylmer: ye economists out there. Let's start with last week. We 10 00:00:36,450 --> 00:00:38,790 Sean Aylmer: had the employment figures, which were a touch higher, or 11 00:00:38,790 --> 00:00:41,430 Sean Aylmer: the unemployment rate was a touch higher than expected. What 12 00:00:41,430 --> 00:00:42,629 Sean Aylmer: do you take from all that? 13 00:00:43,170 --> 00:00:46,409 Stephen Koukoulas: Yes, they were disappointing. I think we've just got to 14 00:00:46,409 --> 00:00:48,719 Stephen Koukoulas: put the background in that the Bureau of Statistics does 15 00:00:48,719 --> 00:00:52,199 Stephen Koukoulas: have a lot of trouble seasonally adjusting the November, December, 16 00:00:52,199 --> 00:00:56,700 Stephen Koukoulas: January data, the changing spending patterns, hiring patterns, when we 17 00:00:56,700 --> 00:00:59,850 Stephen Koukoulas: have our holidays, a whole bunch of stuff. However, cutting 18 00:00:59,850 --> 00:01:02,610 Stephen Koukoulas: through that noise, it still was a very weak labor 19 00:01:02,610 --> 00:01:06,630 Stephen Koukoulas: force release. We had employment basically flat after a minus 20 00:01:06,630 --> 00:01:10,919 Stephen Koukoulas: 62,000 the previous month. So that rebound did not happen. 21 00:01:11,279 --> 00:01:14,280 Stephen Koukoulas: And just as worryingly, the unemployment rate picked up to 22 00:01:15,390 --> 00:01:18,270 Stephen Koukoulas: 4.1%. So it's gone up half a percentage point in 23 00:01:18,270 --> 00:01:22,110 Stephen Koukoulas: four months. That's a pretty big move. And under- employment's 24 00:01:22,110 --> 00:01:24,630 Stephen Koukoulas: creeping up. The hours worked is coming down. So each 25 00:01:24,630 --> 00:01:28,289 Stephen Koukoulas: of these sub- components of the Labour Force database that came 26 00:01:28,289 --> 00:01:31,980 Stephen Koukoulas: through was weak, weak, or weak still. So in a 27 00:01:31,980 --> 00:01:34,230 Stephen Koukoulas: way, it's what the RBA would want to see. They 28 00:01:34,230 --> 00:01:37,410 Stephen Koukoulas: wanted the economy to slow down. They wanted, well, without 29 00:01:37,410 --> 00:01:39,330 Stephen Koukoulas: being too explicit, they wanted the unemployment rate to go 30 00:01:39,330 --> 00:01:42,269 Stephen Koukoulas: up to take pressure off wages and then services inflation. 31 00:01:42,270 --> 00:01:44,940 Stephen Koukoulas: So they're probably going to be sitting back thinking, " Okay, we 32 00:01:45,480 --> 00:01:49,110 Stephen Koukoulas: don't want high unemployment, but our rate hiking policy of 33 00:01:49,110 --> 00:01:50,790 Stephen Koukoulas: the last couple of years is working." 34 00:01:51,330 --> 00:01:54,480 Sean Aylmer: Yeah. Steven Kennedy, the Treasury secretary, last week came out 35 00:01:54,480 --> 00:01:57,480 Sean Aylmer: as well, and he talked about the idea that it's 36 00:01:58,020 --> 00:02:01,530 Sean Aylmer: a once in generation opportunity to get an unemployment rate 37 00:02:01,889 --> 00:02:04,829 Sean Aylmer: that's sustainably low, and I think he talked about having 38 00:02:04,830 --> 00:02:07,800 Sean Aylmer: not seen that since the '70s. Just explain what he's 39 00:02:07,800 --> 00:02:08,670 Sean Aylmer: talking about there. 40 00:02:09,900 --> 00:02:11,550 Stephen Koukoulas: Yeah. Well, if we go back, I think we can 41 00:02:11,550 --> 00:02:14,490 Stephen Koukoulas: look at the economy pre- pandemic and now post- pandemic. Pre- 42 00:02:14,490 --> 00:02:18,780 Stephen Koukoulas: pandemic, we economists, including at the Reserve Bank and Treasury 43 00:02:18,780 --> 00:02:20,280 Stephen Koukoulas: and elsewhere, and I think this is what Steven Kennedy 44 00:02:20,280 --> 00:02:23,399 Stephen Koukoulas: was talking about, we were a bit scared if the unemployment 45 00:02:23,400 --> 00:02:25,859 Stephen Koukoulas: rate got below 5%, we thought that that would fuel 46 00:02:25,860 --> 00:02:28,980 Stephen Koukoulas: or wage pick up that would feed into inflation, so 47 00:02:28,980 --> 00:02:32,429 Stephen Koukoulas: therefore it was not sustainable. What we're learning right now, 48 00:02:32,429 --> 00:02:34,380 Stephen Koukoulas: and I think this is a global phenomenon, we're seeing 49 00:02:34,380 --> 00:02:36,180 Stephen Koukoulas: it in the US, we're seeing it in the UK, 50 00:02:36,870 --> 00:02:40,410 Stephen Koukoulas: we can hold an unemployment rate, let's just call it 51 00:02:40,410 --> 00:02:43,410 Stephen Koukoulas: 4% approximately, give or take a bit of wiggle room 52 00:02:43,410 --> 00:02:47,640 Stephen Koukoulas: around that number, of course, and still not have wages 53 00:02:47,970 --> 00:02:51,720 Stephen Koukoulas: and inflation pressures lurking. So there's been this ratcheting lower 54 00:02:52,290 --> 00:02:55,380 Stephen Koukoulas: in how sustainably low the unemployment rate can be, and 55 00:02:55,380 --> 00:02:57,750 Stephen Koukoulas: that can be linked to a number of things, not 56 00:02:57,750 --> 00:03:00,358 Stephen Koukoulas: actually showing up with the productivity data, but the use 57 00:03:00,360 --> 00:03:04,770 Stephen Koukoulas: of AI technology, these sorts of things, is making the 58 00:03:04,770 --> 00:03:08,459 Stephen Koukoulas: labor force more efficient in many ways, and it means 59 00:03:08,460 --> 00:03:11,758 Stephen Koukoulas: that we need more people. The workforce participation rate's also 60 00:03:11,758 --> 00:03:14,820 Stephen Koukoulas: going up. So it's really this interesting experiment, if we 61 00:03:14,820 --> 00:03:17,100 Stephen Koukoulas: can call it that, that's going on right now, both 62 00:03:17,100 --> 00:03:19,350 Stephen Koukoulas: here in Australia and around the world. Can we grow 63 00:03:19,350 --> 00:03:24,150 Stephen Koukoulas: the economy, have unemployment holding around 4%- ish, and still 64 00:03:24,150 --> 00:03:26,309 Stephen Koukoulas: get inflation back into the target range? That's certainly what 65 00:03:26,309 --> 00:03:27,479 Stephen Koukoulas: everybody's hoping for. 66 00:03:28,500 --> 00:03:31,110 Sean Aylmer: Okay. I just want to quickly mention the National Australia 67 00:03:31,110 --> 00:03:34,319 Sean Aylmer: Bank Consumer Sentiment Conditions Index last week, also the Westpac 68 00:03:34,320 --> 00:03:38,910 Sean Aylmer: Consumer Sentiment. Those consumers, they're a bouncy bunch. They suddenly 69 00:03:39,060 --> 00:03:40,440 Sean Aylmer: get a little bit of good news on rates and 70 00:03:40,440 --> 00:03:40,980 Sean Aylmer: they're back. 71 00:03:41,850 --> 00:03:45,630 Stephen Koukoulas: On interest rates, Taylor Swift's here, there's a whole lot 72 00:03:45,630 --> 00:03:46,889 Stephen Koukoulas: to be happy about right now. 73 00:03:47,040 --> 00:03:49,350 Sean Aylmer: Footy season's about to start again, things like that. 74 00:03:49,350 --> 00:03:53,309 Stephen Koukoulas: Yeah, exactly. So we've actually got this scenario unfolding right 75 00:03:53,309 --> 00:03:55,710 Stephen Koukoulas: now where the talk of rate cuts, even if they're 76 00:03:55,710 --> 00:03:59,520 Stephen Koukoulas: not about to happen anytime really soon, is giving people 77 00:03:59,520 --> 00:04:01,500 Stephen Koukoulas: a bit of relief. The other thing to remember too, 78 00:04:01,500 --> 00:04:04,349 Stephen Koukoulas: Sean, which I think feeds into sentiment, that cost of 79 00:04:04,349 --> 00:04:08,219 Stephen Koukoulas: living pressure, which certainly was more acute 12 months ago, 80 00:04:08,219 --> 00:04:11,669 Stephen Koukoulas: is fading a little bit. We know inflation's falling. Wages 81 00:04:11,670 --> 00:04:16,109 Stephen Koukoulas: growth is reasonable at this stage. So that crossover, if 82 00:04:16,110 --> 00:04:19,500 Stephen Koukoulas: you like, of inflation falling, wages picking up is happening 83 00:04:19,529 --> 00:04:22,410 Stephen Koukoulas: about now. In fact, we'll find out more information later 84 00:04:22,410 --> 00:04:24,630 Stephen Koukoulas: this week on wages. But the really interesting thing is 85 00:04:24,630 --> 00:04:28,349 Stephen Koukoulas: that maybe consumers are just feeling a little less gloomy. 86 00:04:28,350 --> 00:04:30,059 Stephen Koukoulas: I don't think they're optimistic yet, but a little bit 87 00:04:30,059 --> 00:04:35,159 Stephen Koukoulas: less gloomy because of rates, wages picking up, inflation coming down. 88 00:04:35,610 --> 00:04:38,159 Sean Aylmer: You mentioned wages later this week. So what have we 89 00:04:38,160 --> 00:04:38,850 Sean Aylmer: got coming out? 90 00:04:39,330 --> 00:04:41,460 Stephen Koukoulas: Yeah. Well, the one that will be the focus of 91 00:04:41,460 --> 00:04:44,068 Stephen Koukoulas: the markets will be the Wage Price Index. We know 92 00:04:44,070 --> 00:04:48,240 Stephen Koukoulas: that last quarter, the September quarter, included that big jump 93 00:04:48,240 --> 00:04:51,660 Stephen Koukoulas: in the Fair Work Commission pay increase, 1. 3%, which 94 00:04:51,660 --> 00:04:54,900 Stephen Koukoulas: took the annual rate to 4%. Now, we're looking for 95 00:04:54,990 --> 00:04:59,428 Stephen Koukoulas: a bit of a quarterly moderation, something around about 0. 9 96 00:04:59,428 --> 00:05:02,460 Stephen Koukoulas: or 1% quarter on quarter for wages, which will keep 97 00:05:02,460 --> 00:05:05,308 Stephen Koukoulas: the annual rate around about 4%, which is, as we're 98 00:05:05,309 --> 00:05:08,790 Stephen Koukoulas: just discussing, sort of in that groove of sustainable, if 99 00:05:08,790 --> 00:05:11,820 Stephen Koukoulas: you like. So we'll be watching that. If there's, I 100 00:05:11,820 --> 00:05:14,520 Stephen Koukoulas: guess, any surprise to the wages number, to the high 101 00:05:14,520 --> 00:05:17,010 Stephen Koukoulas: side, it'll sort of rekindle some fears that, " Oh, maybe 102 00:05:17,010 --> 00:05:20,880 Stephen Koukoulas: the RBA can't cut just yet," because the services inflation 103 00:05:20,880 --> 00:05:23,279 Stephen Koukoulas: that's linked to wages growth is not coming down much. 104 00:05:24,029 --> 00:05:27,029 Stephen Koukoulas: But if it's sort of on 4.0, decimal points matter 105 00:05:27,029 --> 00:05:29,520 Stephen Koukoulas: in these things, I think the market will be pretty 106 00:05:29,520 --> 00:05:33,719 Stephen Koukoulas: content with that sort of wage increase, particularly, as we were just 107 00:05:33,719 --> 00:05:37,650 Stephen Koukoulas: discussing, the unemployment rate's still or was particularly low in 108 00:05:37,889 --> 00:05:41,580 Stephen Koukoulas: 2023. So the rate debate, the interest rate debate, we'll 109 00:05:41,580 --> 00:05:44,550 Stephen Koukoulas: be focusing on the wages side this week until we 110 00:05:44,550 --> 00:05:46,890 Stephen Koukoulas: get the GDP numbers, but we'll talk about that in 111 00:05:46,890 --> 00:05:47,640 Stephen Koukoulas: a couple of weeks' time. 112 00:05:48,779 --> 00:05:50,909 Sean Aylmer: Okay. We've also got the Reserve Bank minutes, but no 113 00:05:50,910 --> 00:05:52,860 Sean Aylmer: one cares because we heard so much from Michelle Bullock 114 00:05:52,860 --> 00:05:56,399 Sean Aylmer: at the time. You're in your home studio there, Stephen. 115 00:05:56,400 --> 00:05:58,289 Sean Aylmer: You are a man of many talents. And in the 116 00:05:58,289 --> 00:06:01,770 Sean Aylmer: background there you have got... Is it an apple that 117 00:06:01,770 --> 00:06:05,580 Sean Aylmer: I'm looking at there? So, Stephen has a side business. Tell 118 00:06:05,580 --> 00:06:06,118 Sean Aylmer: us about it. 119 00:06:06,839 --> 00:06:09,599 Stephen Koukoulas: Oh, my side business is called Pink Pear. It's ceramic 120 00:06:09,599 --> 00:06:12,630 Stephen Koukoulas: fruit. And that blue apple there is the pride of 121 00:06:12,630 --> 00:06:16,170 Stephen Koukoulas: my possession. It's a matte, M- A-T- T- E, finish, 122 00:06:16,170 --> 00:06:19,380 Stephen Koukoulas: which doesn't glow. You can shine a light on it, 123 00:06:19,410 --> 00:06:23,670 Stephen Koukoulas: and it's just a dull, spectacular, particular finish on that 124 00:06:23,670 --> 00:06:25,890 Stephen Koukoulas: one. So yeah, it's going pretty well. 125 00:06:25,890 --> 00:06:26,669 Sean Aylmer: Wow. Pink Pear? 126 00:06:27,059 --> 00:06:28,440 Stephen Koukoulas: So, Pink Pear is the name of the business. You 127 00:06:28,440 --> 00:06:31,049 Stephen Koukoulas: can buy ceramic fruit sculptures ranging from the little ones 128 00:06:31,049 --> 00:06:33,479 Stephen Koukoulas: like the cherry to big funky ones like that. And 129 00:06:33,480 --> 00:06:36,118 Stephen Koukoulas: I've got great big apples and cherries too that are 130 00:06:36,119 --> 00:06:38,279 Stephen Koukoulas: a meter tall. So give us a call if you're into it. 131 00:06:38,580 --> 00:06:40,860 Sean Aylmer: Wow. pinkpear. com, is that right? 132 00:06:41,550 --> 00:06:42,541 Stephen Koukoulas: pinkpear. com. au. Thank you, Sean. 133 00:06:42,541 --> 00:06:46,258 Sean Aylmer: . au. Fantastic. Thank you, Stephen. Enjoy your week. 134 00:06:46,469 --> 00:06:47,248 Stephen Koukoulas: Thanks, mate. Thank you. 135 00:06:47,910 --> 00:06:50,460 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. 136 00:06:50,460 --> 00:06:52,889 Sean Aylmer: You can find him at thekouk. com and follow him 137 00:06:52,889 --> 00:06:55,020 Sean Aylmer: on X using the handle @ thekouk. I'm Sean Aylmer and 138 00:06:55,020 --> 00:06:56,760 Sean Aylmer: this is Fear and Greed - The Week Ahead.