The RBA minutes are genuinely upbeat -- except for one ominous black cloud

Photo: Michael Dodge/Getty Images

The minutes from the November RBA board meeting are out and in what is one of the more upbeat assessments of the conversation around the board table in some time, there is one curiously disturbing highlight – the bank doesn’t seem to know what’s going on Australia’s jobs market.

On the positive side, the minutes reflect an upbeat tone around inflation, both here in Australia and around the globe. The minutes also show that the positive shock from the improvement to Australia’s terms of trade meant “a more positive outlook for nominal growth in the Australian economy”.

The wash up is an economy that is expected to grow close to potential in the coming quarters before accelerating above potential later in the forecast period.

It all sounds like a central bank that is very happy with official rates at 1.5% and, even with the potential “complication” of a higher Australian dollar, disinclined to ease further.

Not so fast though. There is a disturbing question overhanging Australia’s jobs market.

That’s significant because the RBA noted that house prices have accelerated in Sydney and Melbourne again, but growth in consumption was going to be faster than income, which could be a problem for heavily indebted Australians.

“Members noted that there was significant uncertainty about the outlook for consumption growth given uncertainty about households’ expectations of their income growth and the influence of these expectations on their spending and saving decisions. This was particularly pronounced for households with significant debt” the minutes say.

Which brings me back to that black cloud on the horizon: employment.

Now usually I’m at the forefront of the charge saying there are more Australians working than ever before and that’s a good thing because even at lower incomes and with part-time jobs, these folks have a higher marginal propensity to consume (MPC), that is, they spend their cash, which then multiplies through the economy.

But the RBA said in the November Statement on Monetary Policy that the rise in part-time employment is because of “weakness in labour demand”.

That means the people I assumed have a high MPC may not actually spending their cash and saving it instead, and that seems to be something the RBA can’t get its head around either.

The minutes show the RBA board noted there had been a large number of part-time jobs created recently, which is consistent with the SoMP. But the minutes also note that the RBA hasn’t quite got a handle on exactly how much spare capacity is in the labour market.

They say it twice in the space of two paragraphs.

The first reference says they aren’t sure on spare capacity because they don’t know how many extra hours workers want.

“Members noted that the degree of spare capacity in the labour market depended on how many additional hours workers were seeking and that relevant data were not readily available,” the minutes said.

While the second reference says even though unemployment is edging lowwer and expected to continue to do so they still don’t know how much spare capacity is “in the labour market and how this might ultimately affect inflationary pressures”.

This is particularly important when the latest NAB business survey shows a moderation in the outlook for the business sector and the impact that is likely to have on employment.

Throw in those high-debt households whose consumption is uncertain and the fact that a key pillar to the growth outlook is consumption growing faster than income and we end up with a big black cloud in an otherwise blue sky.

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