Bullhawk stampede!


It’s a mad cacophony of hooves and beaks and screeched revenge today! Head bullhawk, The Kouk, is thundering overhead:


It was always going to happen – the pace of economic growth was certainly strong enough to be generating jobs – it was just the lag between a stronger economy and more jobs that was in question.

So news of a nice jump of 47,300 in employment in February and a flat unemployment rate is certainly good news and it is starting to bring the labour force data into line with the rapid economic expansion now underway in the broader economy.

With house building at record highs, consumer spending returning to above trend growth and export growth running at a strong double digit pace, many more jobs will be created in the year ahead. Indeed, it would be reasonable to expect around 200,000 jobs to be created in the next 12 months, even if the monthly profile to get there is extremely volatile.

When the lift in non-mining investment is also taken into account, there appear to be very few downside risks to Australian growth in the year ahead, even allowing for a possible tight budget in May.

Another quarter or two where GDP growth runs at a 3 per cent plus growth pace, which is likely given the hard data of recent times, would signal not only stronger demand for labour, but would suggest that some of the building inflation pressures over the past half year would also be magnified.

This is where the RBA is playing a dangerous game in refusing to move monetary policy towards neutral – ie, starting the process of hiking the cash rate to ensure its inflation target is not blown out of the water. A 25 basis point rate hike now, followed by another in a few months, for example, would hardly derail the growth momentum in the economy.

But a rate hike would certainly signal the RBA’s seriousness in meeting its inflation target and would give it a bit of wriggle room in either a scenario of very strong growth (thankfully we acted early) or an economic decline (let’s take back those hikes and no damage done).

Add to that rampaging house prices – prices are up 1.5 per cent in the first two weeks of March and are now 2.7 per cent up for 2014, year to date – and the impediments to the RBA hiking interest rates are scarce.

On the contrary, a clear turn in the labour market, as evident in today’s data, suggest the RBA will get smart and will start a rate hiking cycle in the next few months.

Fellow feathered bovine, Paul Bloxham rattled his bell, though with considerably greater sobriety:

Australia’s labour market improved in February, after a run of weak labour market outturns in recent months. Overall, the labour market remains loose – with the unemployment rate still at the highest level since 2003 – but it does appear to be improving. With the economy still some distance from full employment, pressures on wage costs are likely to remain subdued in the near term and not yet present a concern for the RBA.

However, we expect the labour market to continue to improve in coming months. The domestic economy looks to have turned a corner from Q3 last year. The economy posted solid growth in Q4 and a broad range of domestic indicators point to a further rise in activity over the beginning of 2014. In our view, the labour market lags the broader cycle in demand and given usual lags we would expect the improvement in hiring to further gather pace in coming months.

This improvement is beginning to be seen in the forward indicators of labour demand. Business surveys suggest the pace of hiring should continue to rise in the near-term, while job advertisement surveys point to a decline in the unemployment rate.

The labour market is likely to be a key factor determining the timing of future rate increases from the RBA. Typically, the RBA has only raised interest rates while the unemployment rate is falling. Their current view is that the unemployment rate will continue to rise through 2014. Given the usual lags between domestic activity and the labour market, we expect the unemployment rate could begin to decline in a meaningful way by the middle of this year – a factor potentially paving the way for rate hikes before the end of 2014.

From Crikey comes galloping support for the Pascometer:

Joe the Confidence Killer, they could call him. Hockey the Hatchet man of Hope, the Slayer of Sentiment.

The Westpac-Melbourne Institute Consumer Sentiment Index fell again between February and March, the Institute revealed, and is now down to 99.5 after reaching a high of 110 in November. “The proportion of pessimists now exceeds that of optimists for the first time since May last year,” the Institute darkly reported. Fairfax columnist Michael Pascoe correctly pinged Treasurer Hockey’s gloom, doom, we’ll-all-be-rooned rhetoric for the slump. Hockey’s garment-rending about the state of the economy continued well past his ascension to the treasurership. It continued through his first visit to Washington DC (which yielded dramatic predictions of bad times coming, and a $9 billion handout to the Reserve Bank to help fight them), December’s MYEFO statement, in which he used low-ball nominal GDP numbers to complain about the huge debt Labor had left him, and into the New Year, when he promised a slash-and-burn budget.

But in particular, as Pascoe spotted, consumer sentiment was also affected by partisanship: Labor voters see nothing but economic bleakness compared to Coalition voters — the gap this month is 84.5 for the former to 115.4 for the latter, a dramatic reversal from this time last year when Labor voters led Coalition voters on confidence by 25 points.

As I noted yesterday, and Crikey underlines itself, this happens every election so the Pascometer’s analysis (and Crikey’s)  is still weak.

They go on to argue that there is no relationship between confidence and spending anyway so the recent falls in sentiment are irrelevant. Judge for yourselves the wisdom of that in the data:



My view remains unaltered. Yes, the first half will show some improvement in the labour market, but no, it won’t accelerate as the year rolls on and the capex cliff, as well as falling terms of trade, holds us back. The one thing that might change that is renewed Chinese stimulus but even then the likelihood is no rate hikes this year, and probably not next year, either.

On the other hand, macroprudential controls are inevitable!

16 Responses to “ “Bullhawk stampede!”

  1. The Lorax says:

    At least Bloxo’s language is a little more measured. I want whatever pill The Kouk is on. Its one thing to be optimistic, but his bulletproof confidence is breathtaking.

    Is he ever wrong?

    • Yes, but never in doubt.

    • Jason says:

      I don’t even know why HnH does that questionable economist the favour of further distributing his reactions to every release of economic data.

      • It’s part of my job description to track the views in the marketplace. It does not always bring me pleasure!

      • Jake89 says:

        Part of the mission of this blog – as I read it – is to hold not just politicians to account but the media too. Kouk is a prominent figure who even friends of mine listen to.

    • Strange Economics says:

      Macroprudential’s aren’t inevitable – (we can’t be seen to be copying NZ’s success can we. Note RBA wants to try jawboning bank mortgage margins instead – which will never work – see everywhere ads for 99% mortgages and a Sydney super bubble !
      Joe (of the North Shore Hockey Real estate family) isn’t gonna kill off the property ponzi which 12% of the economy depend upon !

  2. kodiak says:

    I wish that he would clarify “soon” for his interest rate predictions.

  3. migtronix says:

    And all these guys picked gold USD900 — what happened?

    • I am set to collect 3 ounces of Silver from The Kouk when Gold surpasses $2000 instead of dropping below $1000 (bet made when price was circa $1500). Though I’ll admit it was looking pretty hairy there for awhile :)

  4. Jake89 says:

    omg srsly Kouk? The obsession with daily data output is a sign of a poor economist, and Kouk is the grandmaster. Benjamin Graham sagely points out the idiocy in this habit in his classic work. And as Hayek said, we judge causes and plot solutions based on what we can measure, and that’s wrong on a number of levels. We measure GDP (lol) and CPI (lol), and we have a very noisy labour force data set. I’m sorry, grow up…

    FWIW MB can be a little too enthusiastic on daily data sets too but is very much redeemed in structural analysis and plain common sense.

    • Explorer says:

      I agree that the emphasis on latest figures is not very useful and it would be more useful to focus on trend and longer term analysis a bit less frequently.

      That said, if the articles don’t point out the weakesses in the current release data analysis, the comments generally do.

      I would recommend more Doug Short style articles on the major economic indicators enphasising trends:

    • Frederic Bastiat says:

      Agree with everything here Jake89!

      The funny thing is about the these tyoes of economists, is that they love models and daily outputs and measuring things to support their Keynsian nonsense, but then the really important data – actual price signals (and the extent of their manipulation) are often totally overlooked.

      When the SHTF, I really want to make sure the Kouk and Pascoe go down in flames. They have pinned their reputation to a resurgent and healthy Australian economy in 2014…so if we crash, they have to go down with the ship.

      Imagine a world where you read the MSM and you get the likes of UE, HnH, Keen getting talked about at the water cooler etc…

      Not the arrogant baby boomer nonsense that we now get now from Gittins et al

      • Jake89 says:

        Yeh well its guys like Pascoe, Kouk who look at measured things and see growth and connect that with actual wealth and income. LOL. Its this type of economic misunderstanding that ol’ Freidrich was worried about.

        The seen and the unseen ay?

  5. Jake89 says:

    I wonder if the kouk sees any irony in his nickname