1 00:00:08,190 --> 00:00:10,590 Sean Aylmer: Welcome to Fear and Greed: the Week Ahead. I'm Sean 2 00:00:10,590 --> 00:00:14,070 Sean Aylmer: Aylmer, and as always, I'm joined by economist Stephen Koukoulas. 3 00:00:14,340 --> 00:00:17,430 Sean Aylmer: You'll find him at thekouk. com, T- H- E- K- O- U- 4 00:00:17,430 --> 00:00:19,590 Sean Aylmer: K dot com, and on Twitter using the handle TheKouk. 5 00:00:20,130 --> 00:00:21,120 Sean Aylmer: Stephen, good morning. 6 00:00:21,450 --> 00:00:22,530 Stephen Koukoulas: A very good morning, Sean. 7 00:00:23,130 --> 00:00:24,900 Sean Aylmer: I think we have to talk a bit about last 8 00:00:24,900 --> 00:00:28,110 Sean Aylmer: week. Those labor force numbers. I mean, in fact, exactly 9 00:00:28,110 --> 00:00:31,080 Sean Aylmer: what you said would happen happened, but it's a pretty 10 00:00:31,080 --> 00:00:31,920 Sean Aylmer: good market out there. 11 00:00:32,340 --> 00:00:34,650 Stephen Koukoulas: It is, and what we did see was that the 12 00:00:34,770 --> 00:00:36,720 Stephen Koukoulas: unemployment rate, well, it ticked up one- tenth of a 13 00:00:36,720 --> 00:00:39,570 Stephen Koukoulas: percent, but really, it was basically the same number because 14 00:00:39,570 --> 00:00:42,479 Stephen Koukoulas: what we saw was a lift in the participation rate. 15 00:00:42,479 --> 00:00:45,510 Stephen Koukoulas: So after that statistical dipped down two months ago, it 16 00:00:45,510 --> 00:00:50,729 Stephen Koukoulas: rebounded. Employment after dipping down rebounded. So rather than sort 17 00:00:50,729 --> 00:00:53,280 Stephen Koukoulas: of focusing on the monthly number, I think it's fair 18 00:00:53,280 --> 00:00:54,900 Stephen Koukoulas: to say look at the trend and look at what's 19 00:00:54,900 --> 00:00:57,900 Stephen Koukoulas: happened over a series of months. And when we do 20 00:00:57,900 --> 00:00:59,490 Stephen Koukoulas: that, and I'm sure the Reserve Bank will be doing 21 00:00:59,490 --> 00:01:02,130 Stephen Koukoulas: that, it shows that the labor market still is tight as 22 00:01:02,130 --> 00:01:05,550 Stephen Koukoulas: a drum. There's still a solid level of employment growth 23 00:01:05,550 --> 00:01:09,450 Stephen Koukoulas: in trend terms. The unemployment rate's tracking basically at a 24 00:01:09,450 --> 00:01:12,780 Stephen Koukoulas: 50 year low and the participation rate's tracking at an 25 00:01:12,780 --> 00:01:16,110 Stephen Koukoulas: all time high. So overlay that with demand for labor 26 00:01:16,110 --> 00:01:18,480 Stephen Koukoulas: from the job vacancies, job add series, and even though 27 00:01:18,480 --> 00:01:22,080 Stephen Koukoulas: they're topping out a little, the labor market's still very, 28 00:01:22,080 --> 00:01:22,710 Stephen Koukoulas: very strong. 29 00:01:23,670 --> 00:01:26,700 Sean Aylmer: One thing which a few of the economists mentioned last 30 00:01:26,700 --> 00:01:29,759 Sean Aylmer: week is full employment, the concept of full employment, and 31 00:01:29,970 --> 00:01:31,800 Sean Aylmer: I'm going to drop one of my all time favorite 32 00:01:31,800 --> 00:01:36,539 Sean Aylmer: acronyms here, Stephen, the NARU, the non accelerating inflationary rate 33 00:01:36,540 --> 00:01:37,051 Sean Aylmer: of unemployment. 34 00:01:37,051 --> 00:01:37,890 Stephen Koukoulas: Unemployment. 35 00:01:37,890 --> 00:01:38,730 Sean Aylmer: Would that be right? Yeah? 36 00:01:38,730 --> 00:01:39,660 Stephen Koukoulas: Pretty good. Yes, yes. 37 00:01:40,000 --> 00:01:43,770 Sean Aylmer: (inaudible) . But the whole concept that we've got so many 38 00:01:43,770 --> 00:01:47,730 Sean Aylmer: people in work that prices, i. e. wages, have to 39 00:01:47,730 --> 00:01:48,180 Sean Aylmer: go up. 40 00:01:48,990 --> 00:01:51,960 Stephen Koukoulas: Yes. And that's why it's an interesting concept. Now, the 41 00:01:51,960 --> 00:01:55,110 Stephen Koukoulas: smarter academic type economists would say, " Look, the NARU is 42 00:01:55,110 --> 00:01:59,040 Stephen Koukoulas: a moving feast. It depends on technological change, composition of 43 00:01:59,040 --> 00:02:02,430 Stephen Koukoulas: the labor market, demographics, population growth, a whole myriad of 44 00:02:02,430 --> 00:02:05,850 Stephen Koukoulas: things." So it does change from time to time, but 45 00:02:06,420 --> 00:02:08,490 Stephen Koukoulas: I think it's fair to say that here and now, 46 00:02:08,520 --> 00:02:14,730 Stephen Koukoulas: it's probably around about 4%. I know that others will say it's a fraction higher. 47 00:02:15,180 --> 00:02:18,780 Stephen Koukoulas: So given that we've got the unemployment rate below 4%, 3. 48 00:02:19,230 --> 00:02:21,570 Stephen Koukoulas: 5% as we were just saying, and that demand for 49 00:02:21,570 --> 00:02:24,120 Stephen Koukoulas: labor's still pretty strong, it says to me that the 50 00:02:24,210 --> 00:02:26,730 Stephen Koukoulas: tightness in the labor market should be showing up in 51 00:02:26,730 --> 00:02:30,120 Stephen Koukoulas: higher wages. I suspect we're still a quarter or two 52 00:02:30,120 --> 00:02:32,820 Stephen Koukoulas: away from that actually materializing. But it also shows up 53 00:02:32,880 --> 00:02:35,820 Stephen Koukoulas: in an inability of firms to hire the people they 54 00:02:35,820 --> 00:02:39,750 Stephen Koukoulas: need to expand. It's really curious that at this overflow 55 00:02:39,750 --> 00:02:44,399 Stephen Koukoulas: employment or breaking through this NARU, that firms are actually 56 00:02:44,400 --> 00:02:46,950 Stephen Koukoulas: saying that one of their biggest constraints on doing business 57 00:02:46,950 --> 00:02:49,260 Stephen Koukoulas: is it's not interest rates, it's not a lack of 58 00:02:49,260 --> 00:02:51,480 Stephen Koukoulas: orders, it's the lack of labor. So they've got these 59 00:02:51,480 --> 00:02:54,300 Stephen Koukoulas: great business plans and can't find anybody to work for 60 00:02:54,300 --> 00:02:55,470 Stephen Koukoulas: them. Incredible, 61 00:02:55,830 --> 00:02:58,740 Sean Aylmer: Pretty incredible. Just a couple of other surveys out last 62 00:02:58,740 --> 00:03:01,860 Sean Aylmer: week which are worth a mention. The National Australia Bank 63 00:03:01,919 --> 00:03:06,180 Sean Aylmer: Business Conditions and Sentiment survey and Business is Happy. And 64 00:03:06,180 --> 00:03:11,700 Sean Aylmer: then the Westpac Melbourne Institute Consumer Sentiment survey, which surprisingly 65 00:03:11,700 --> 00:03:12,480 Sean Aylmer: jumped up a little. 66 00:03:12,990 --> 00:03:15,090 Stephen Koukoulas: Yeah, well, on the business survey first, cause that's the 67 00:03:15,090 --> 00:03:18,210 Stephen Koukoulas: one where there's been more resilience, I suppose, in what 68 00:03:18,210 --> 00:03:21,869 Stephen Koukoulas: businesses are saying about their confidence and how business conditions 69 00:03:21,870 --> 00:03:24,780 Stephen Koukoulas: are tracking. There's a whole lot of sub- readings within 70 00:03:24,780 --> 00:03:28,919 Stephen Koukoulas: their survey on employment conditions, trading and profitability, and they're 71 00:03:28,919 --> 00:03:32,400 Stephen Koukoulas: all pretty good. So the business sector's saying that the 72 00:03:32,400 --> 00:03:35,040 Stephen Koukoulas: economy's chugging along quite nicely. They're happy with the way 73 00:03:35,040 --> 00:03:38,580 Stephen Koukoulas: things are except for the availability of labor, whereas we 74 00:03:38,580 --> 00:03:42,120 Stephen Koukoulas: consumers we're a miserable lot. And while consumer sentiment did 75 00:03:42,120 --> 00:03:45,360 Stephen Koukoulas: kick up, I think it was 3. 9%, in the 76 00:03:45,360 --> 00:03:48,870 Stephen Koukoulas: survey, it's still at a really low level. Some people 77 00:03:48,870 --> 00:03:52,020 Stephen Koukoulas: were suggesting that that mini rebound was because petrol prices 78 00:03:52,020 --> 00:03:53,550 Stephen Koukoulas: have come off a bit and that sort of feeds 79 00:03:53,550 --> 00:03:56,730 Stephen Koukoulas: into people's thinking. But suffice to say, if you look 80 00:03:56,730 --> 00:03:59,910 Stephen Koukoulas: at the actual level of consumer sentiment, it's still well 81 00:03:59,910 --> 00:04:02,730 Stephen Koukoulas: below long run averages. And I think we're still very 82 00:04:03,150 --> 00:04:07,050 Stephen Koukoulas: gloomy about interest rates going up, maybe house prices coming 83 00:04:07,050 --> 00:04:09,660 Stephen Koukoulas: down a bit, and there's cost of living pressure, which 84 00:04:09,660 --> 00:04:12,120 Stephen Koukoulas: is really ... it's biting a lot of people I think 85 00:04:12,120 --> 00:04:12,540 Stephen Koukoulas: at the moment. 86 00:04:13,080 --> 00:04:15,540 Sean Aylmer: Now, coming up, we have a quiet week for an 87 00:04:15,540 --> 00:04:18,089 Sean Aylmer: economist. The Reserve Bank Board minutes are out, but not 88 00:04:18,089 --> 00:04:19,530 Sean Aylmer: much otherwise. 89 00:04:20,010 --> 00:04:21,960 Stephen Koukoulas: No, a really quiet week. It's sort of like the 90 00:04:21,960 --> 00:04:24,690 Stephen Koukoulas: thing that happens in the third week of each month, 91 00:04:24,690 --> 00:04:27,120 Stephen Koukoulas: of each calendar month. We have a huge lot of 92 00:04:27,120 --> 00:04:28,560 Stephen Koukoulas: stuff in the first couple of weeks, then we have 93 00:04:28,560 --> 00:04:30,060 Stephen Koukoulas: the quiet week and then we have a busy week. 94 00:04:30,060 --> 00:04:32,880 Stephen Koukoulas: And we're into this quiet week where, yeah, the only 95 00:04:32,880 --> 00:04:35,700 Stephen Koukoulas: things of note are the minutes of the RBA. And 96 00:04:35,700 --> 00:04:38,910 Stephen Koukoulas: that'll be important because obviously, that's the meeting of a 97 00:04:38,910 --> 00:04:41,070 Stephen Koukoulas: couple of weeks ago, when they did hike rates by 98 00:04:41,070 --> 00:04:44,310 Stephen Koukoulas: 50 basis points. It'll be interesting to see whether there's 99 00:04:44,310 --> 00:04:46,919 Stephen Koukoulas: any more flesh on the bones, so to speak, about 100 00:04:46,920 --> 00:04:52,410 Stephen Koukoulas: their forward thinking because the markets now, despite this incredible 101 00:04:52,800 --> 00:04:56,130 Stephen Koukoulas: selloff in the US with its higher than expected inflation 102 00:04:56,130 --> 00:04:59,580 Stephen Koukoulas: reading last week, the markets in Australia are saying, " Well, 103 00:04:59,580 --> 00:05:02,880 Stephen Koukoulas: maybe the RBA's going to be reverting to 0. 25 104 00:05:03,000 --> 00:05:06,089 Stephen Koukoulas: moves in official rates rather than the 0.5 that they've delivered 105 00:05:06,089 --> 00:05:08,609 Stephen Koukoulas: for the last four months." And so the minutes will 106 00:05:08,610 --> 00:05:11,190 Stephen Koukoulas: be looked at and sort of trolled over for any 107 00:05:11,190 --> 00:05:13,980 Stephen Koukoulas: clues on that front. But yeah, that's about it. There's 108 00:05:13,980 --> 00:05:17,159 Stephen Koukoulas: no other hard data on the local economy to guide us. 109 00:05:18,390 --> 00:05:20,429 Sean Aylmer: One other thing I just want to mention to you, and it came up 110 00:05:20,430 --> 00:05:22,200 Sean Aylmer: last week and we're going to hear a lot about 111 00:05:22,200 --> 00:05:26,160 Sean Aylmer: it, is this independent review of the Reserve Bank and 112 00:05:26,160 --> 00:05:30,570 Sean Aylmer: the idea that perhaps we need not just business people 113 00:05:30,570 --> 00:05:32,370 Sean Aylmer: on it, but people who know about monetary policy. 114 00:05:32,670 --> 00:05:34,589 Stephen Koukoulas: Yeah, look, I think at the end of the day, 115 00:05:34,589 --> 00:05:36,450 Stephen Koukoulas: that review of the Reserve Bank and what they do 116 00:05:36,450 --> 00:05:39,240 Stephen Koukoulas: and how they function and can they do a better 117 00:05:39,240 --> 00:05:42,090 Stephen Koukoulas: job at managing the economy, is a very interesting one. 118 00:05:42,360 --> 00:05:44,909 Stephen Koukoulas: I think it's necessary for a number of reasons. One, 119 00:05:44,910 --> 00:05:47,880 Stephen Koukoulas: there hasn't been one for a while, and two, there's 120 00:05:47,880 --> 00:05:51,089 Stephen Koukoulas: been a few missteps in the last few years. And 121 00:05:51,089 --> 00:05:53,520 Stephen Koukoulas: really importantly, the review of the board will be more 122 00:05:53,520 --> 00:05:56,790 Stephen Koukoulas: about how it's governed. So I think we'll have a 123 00:05:56,790 --> 00:05:59,640 Stephen Koukoulas: decision about the people who make up the board, that 124 00:05:59,910 --> 00:06:02,010 Stephen Koukoulas: we'd perhaps move away from business people who might be 125 00:06:02,010 --> 00:06:04,020 Stephen Koukoulas: great business people but don't know a whole lot about 126 00:06:04,020 --> 00:06:07,080 Stephen Koukoulas: monetary policy, and that rather they'll appoint people who are 127 00:06:07,110 --> 00:06:10,800 Stephen Koukoulas: monetary policy experts onto the board and hopefully that leads 128 00:06:10,800 --> 00:06:12,990 Stephen Koukoulas: to better decisions over the more medium term, that they 129 00:06:12,990 --> 00:06:14,190 Stephen Koukoulas: get interest rates right. 130 00:06:14,670 --> 00:06:15,420 Sean Aylmer: Thank you, Stephen. 131 00:06:15,870 --> 00:06:17,520 Stephen Koukoulas: And thanks very much, Sean. Have a good week. 132 00:06:17,910 --> 00:06:20,760 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. 133 00:06:20,790 --> 00:06:22,890 Sean Aylmer: You can find him at thekouk. com and follow him 134 00:06:22,890 --> 00:06:25,919 Sean Aylmer: on Twitter using the handle TheKouk. I'm Sean Aylmer. This 135 00:06:25,920 --> 00:06:27,390 Sean Aylmer: is Fear and Greed: the Week Ahead.