The RBA's balancing problem
At 2:30am BST on Thursday April 18 the Australian Jobs data will be released. The two numbers are the employment change and unemployment rate. +15.2K jobs are expected and the unemployment rate is expected to come in at 5%. For some weeks now the RBA has been recording in their minutes their confidence in their labour data. The frustration for the RBA has been that at the same time GDP data has been weak. This has resulted in the on hold bias with a balance of risks, when considering the volatile global outlook. Here are some excerpts illustrating the point:
The RBA on slow growth
Public demand had contributed strongly to GDP growth over 2018, supported by spending on the National Disability Insurance Scheme and aged care and health services, and investment in infrastructure. Members noted that, despite this, the overall fiscal impact on the economy had been negative because of slow growth in some other forms of government expenditure and strong growth in tax revenues.
The RBA on strong labour data
The labour market had continued to improve in early 2019, despite the slowing in growth recorded in the national accounts through 2018. Employment had increased a little in February, following strong growth in January, and the unemployment rate had declined to 4.9 per cent, continuing the run of months with an unemployment rate at or around 5 per cent. Other measures of spare capacity, including the underemployment rate and the long-term unemployment rate, had also trended downwards. The participation rate had been relatively stable at a high level over the preceding year or so.
The RBA recognise this is a universal problem
This was consistent with guidance from major central banks that monetary policy would remain more accommodative than earlier expected, given downward revisions to growth forecasts and little upside risk to inflation despite increasingly tight labour markets.
...but also a specific Australian problem
In a number of economies, continued strength in labour market data and moderating GDP growth were sending different signals about the momentum in economic activity. Members noted that this was also the case in Australia. While the labour market had continued to improve in early 2019, GDP growth had slowed over 2018.
What it means for us?
So, look for the jobs data to have extra focus this week. In particular, look for bad labour data to move the AUD lower. A weakening labour market would confirm the RBA's cautious bias. There should be some follow through on the downside. The risk of course is that the US and China announce a trade deal and then AUD will rally on China's good news as their economies are so closely tied to each other.
