The Australian Bureau of Statistics (ABS) will be releasing its employment data for September any day now. This measure is Australia’s most timely and important indicator of the strength of the labor market. Unemployment analysts are expecting the unemployment rate to tick up from 4.2% to 4.3%. This new reality begs the question of where our booming labor market is supposed to grow. This data is critically important. Second, it directly connects to consumer spending and inflation, two major drivers that influence the broader economic climate.
The Australian economy is extremely dependent on its exports to China. As a result, changes in global trade policy, in particular, the ongoing trade war between the United States and China, would have a greater effect on the Australian dollar. The next quarterly data release will shed light on how these external factors are affecting domestic job creation.
Anticipated Unemployment Rate Increase
The unemployment rate is an important barometer used by economists and policymakers to assess the health of the economy. An increase in this rate would be good news, pointing to a cooling labor market and thereby some emerging weaknesses from within the broader Australian economy. Not many economists … Read more › Economists are wringing their hands about the projected increase to 4.3%. If it does, this will be a sign that critical sectors are not growing.
The ABS employment data is released approximately 15 days after each month concludes. It provides a relevant glimpse at developing labor market trends. If the unemployment rate increases, it will ignite fresh debates about what monetary policy changes should be made. The Reserve Bank of Australia (RBA) will be key to this discussion.
“Inflation likely to be stronger than forecast in Q3, and labor market and economic conditions might be tighter than assumed,” – Sarah Hunter
This cautionary note from Sarah Hunter speaks to the prevailing concern about inflation, as well as what we expect from the job numbers this week. A strong labor market is usually a positive for consumer spending, but this could change if unemployment starts to go up, reversing the impacts.
Global Trade Tensions Affecting Australia
Like Canada, the Australian economy is deeply dependent on exports — primarily resources — to China. This dependence places it in a precarious position given the current trade war with the United States. These tensions may be enough to put downward pressure on the Australian dollar. This scenario further burdens local businesses whose lifeblood is international trade.
As global economic conditions change, the overall nature of Australia’s deep relationship with its trading partners becomes increasingly important. Investors are eagerly watching for news that would impact trade policies and economic cooperation between the two countries.
The effect of U.S.-China relations on Australian exports should not be overlooked. An international trade downturn can spike demand for Aussie exports. This decrease will have real effects on employment and will stifle the overall economy growth.
Interest Rate Cuts and Economic Outlook
Again, we need to hear more from Federal Reserve Governor Michelle Bowman, who’s correctly perceiving a cooling job market. She’s calling on the Fed to lower interest rates. She reiterated her strong desire to pursue additional cuts even as the economy clearly starts to slow down.
“I continue to see two more cuts before the end of this year,” – Michelle Bowman
Bowman’s comments further signal that there is a growing realization among economists that monetary policy must evolve with the changing economic climate. By lowering borrowing costs, these interest rate hikes have the potential to turbocharge the very borrowing and consumer spending that keep workplaces and their employees humming.
Given the seriousness of the situation, all eyes are on Thursday’s employment data release from the ABS. For investors, the most interesting aspect will be how the numbers reconcile with the macro economic narrative. The results will all but determine how the RBA chooses to proceed on interest rates. They will too impact the RBA’s desire to stimulate economic growth.