The minutes of the Reserve Bank of Australia’s July monetary policy meeting are out and, just like the monetary policy statement released alongside the July rate decision, an implicit easing bias has been maintained.
Here’s the all-important final paragraph.
In light of current and prospective economic circumstances and financial conditions, the Board judged that leaving the cash rate unchanged was appropriate. Information to be received over the period ahead on economic and financial conditions would continue to inform the Board’s assessment of the outlook and hence whether the current stance of policy remained appropriate to foster sustainable growth and inflation consistent with the target.
So, as many suggested following the monetary policy statement’s release, the RBA board is in watch-and-wait mode for the foreseeable future, waiting upon upcoming economic data from home and abroad to determine whether further policy easing is required.
While the minutes were largely reflective of the July monetary policy statement, there was some expanded discussion on the state of Australia’s labour market.
Here’s what the minutes say:
“Labour force data indicated further signs of improvement in May. Employment growth had picked up over the year to exceed the rate of population growth. As a result, the unemployment rate had been relatively stable since the latter part of 2014 and had fallen slightly in May to 6 per cent. Members observed that employment growth had been strongest in household services and that employment and vacancies had been growing for business services but had remained little changed in the goods sector. As with other state-based indicators, employment growth and job vacancies had been strongest in New South Wales and Victoria. Forward-looking labour market indicators had been somewhat mixed over recent months. The ABS measure of firms’ job vacancies overall suggested that demand for labour could be sufficient to maintain a stable or even falling unemployment rate in the near term, while other forward-looking indicators suggested only modest growth in employment in coming months.
Members noted the latest estimates indicated the population had increased by 1.4 per cent over the year to the December quarter, down from a peak rate of growth of 1.8 per cent over 2012. The slower growth was primarily accounted for by a decline in net immigration, which was particularly pronounced in Western Australia and Queensland, consistent with weaker economic conditions in those states. Members observed that the lower-than-expected growth in the population helped to reconcile the below-average growth in output over the past year with a broadly steady unemployment rate.
Despite recent improvements in labour market indicators, members reflected that there was still evidence of spare capacity in the labour market. Consistent with this, the latest national accounts data indicated that non-farm average earnings per hour had recorded the lowest year-ended outcomes since the early 1990s and that unit labour costs had been little changed for around four years”.
While the outlook for wages remains subdued by historic norms, slower population growth, primarily due to reduced levels of immigration, may now see the national unemployment rate hold steady, or even fall, over the short-to-medium term, according to the RBA.
This is interesting given the RBA in May was forecasting unemployment to peak at 6.5% in mid-2016. While volatility in leading labour market indicators has been high lately, the view that unemployment may hold steady or decline in the months ahead may see the board downgrade its unemployment forecasts in its upcoming statement on monetary policy that be released on August 7.
For anyone interested in the July minutes in full, it’s here.