New data reveals room for more rate cuts this year

By Grace Ormsby

July 19 2019
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New full-time employment figures from the Australian Bureau of Statistics bode well for household income growth, despite an economist predicting the cash rate to fall even lower by the year’s end.

In the first read on the labour market that’s been received since the Reserve Bank of Australia’s consecutive rate cuts, BIS Oxford Economics’ senior economist, Sean Langcake, has explained that the labour market continues to perform well, despite the addition of only 500 jobs in June.

The unemployment rate has held steady at 5.2 per cent for the third consecutive month, leading to the participation rate “remaining at its record high level of 66 per cent”.

Mr Langcake noted an increase to the full-time employment figures as being “mostly offset by a decline in part-time employment”.

“As a result, the underemployment rate has ticked back down to 8.2 per cent,” he continued.

Commenting that more full-time employment bodes well for growth in household incomes, the economist explained the “puzzle” that is strong employment growth in comparison to continued “weak output growth”.

As a result, Mr Langcake explained that labour productivity, or the output per worker, is now in decline, which has combined with a “slack in the labour market” to create a weight on wage growth.

The result?

“With people continuing to enter the labour market and/or seek more hours than they currently work, there is very little supply side pressure on wages,” the economist explained.

And with labour productivity falling, “firms cannot sustainably increase wages for workers without reducing their profit margins”, he stated.

The RBA “will be looking for further employment growth in the coming months”, according to the economist, with the material impact aimed at seeing unemployment and underemployment rates fall further.

Mr Langcake said, “We expect the RBA board to cut rates at least once more this year, taking the cash rate to 0.75 per cent by year-end”.

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About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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