Not good enough.
It was a judgment on Australia Strelia's new unemployment data on Thursday that showed that many people have moved to jobs, but not really enough for the unemployment rate, you know.
Unemployment is stagnating .2 percent, and that means the RBA is still ready to reach higher rate reductions.
For a while, Australia's labor market in Australia has been a troubling place. We reduce the need for unemployment so that the labor market does not have that much “slack” and companies have to start paying higher wages.
On Thursday, we found that the evidence slack was still abundant. July's ABS data shows the economy did really well in one sense – it moved 41,000 people into jobs, mostly full time. But that large number was not enough.
We have so many people coming to the job market every month that we have not reduced the number of unemployed. In fact, the number of unemployed has exceeded the ABS size of 800.
What's more, the unemployment rate has risen, meaning that many people still choose to work more hours. It just goes to show how Australians are eager to work if jobs are out there. We are not sluggish, the economy is.
The question of money
Unfortunately, wage growth in Australia Stralia has been poor. Average weekly earnings have increased by just 2.5% over the past year, with inflation just ahead of the nose. Wage growth was significantly lower, on average 4 percent or more.
There are two major reasons for poor wage growth:
.. The economy is in a big cycle. One person's spending is another person's income, and poor wage growth slows that cycle. If we feel that our wages do not increase, we will spend less, which will reduce the wages of others.
They call this the "anti-economic paradox." One person trying to be a partner is fine, but if we all do it together, the economy will stumble.
2. Australia has a surprising, record high level of debt in Stralia. Paying a million dollar mortgage is not that difficult, if you can count on a cent percent pay rise every year.
The magic of compounding is that a 4 percent annual salary increase will turn $ 70,000 a year into $ 179,000 a year over 25 years. More than twice
In contrast, the annual 2 percent pay raise lifts wages very low, and converts $ 70,000 a year to $ 113,000 a year for 25 years.
Mortgage holders calculate on strong wage growth to pay off their loans, which can be more difficult than previous payroll.
And, of course, one and two reasons are connected. The more debt you owe than your income, the more you spend on paying down debt and less on shops. This is the reason why we need wage growth and why the RBI has promised to keep interest rates low until the salary situation is resolved.
Interest rate cuts are an excellent pressure release valve from the situation described above.
The RBA hopes that if it reduces the rate, the life of the Strelian economy will be easier.
People who have to pay off their loan have a lower repayment rate. They have more money left, and they spend more, and can run the economy again freely. Reducing interest rates is like breaking the economy.
The ABS Labor Force data yesterday was enough to change the predictions for the Commonwealth Bank interest rate.
They now predict that this year, two more rates will be dropped instead of just one – essentially saying we need to take off the brakes immediately.
Higher rate cuts would be unprecedented. It will take the official interest rate from 1 percent of their current level to just 0.5 percent.
(The official interest rate is the rate the bank pays when they take a loan from the central bank. The interest rate on the loan they sell is slightly higher than the official rate.)
The big risk of all of these is that low interest rates do not outperform the economy and they do not do enough to solve the job market.
The risk is that they just blow up the housing market again. And God knows there is very little in the housing market.