RBA must ignore ABS numberwang

The Australian Bureau of Statistics has joined Australia’s War of Stupid. Recall:

For the last few years, that outlook has been a War of Stupid between overly tight monetary policy versus overly tight fiscal policy. The RBA refused to ease for years, demanding instead that Josh Depressionberg spend more on productivity-enhancing investment. Depressionberg pointedly did the precise opposite, in the hope of forcing the RBA into further rate cuts that would trigger another round of house price inflation and consumption.

Australians have been pressed gammon as the economy did nether. House prices managed a bounce out of the 2018 credit crunch but consumption and private investment ignored it, even with the aid of large tax cuts which were saved. Meanwhile, Depressionberg ran public investment into the ground, exacerbated by the end of the NBN build, so that the economy was effectively at stall speed and the private sector in recession as we entered the COVID-19 shock.

The War of Stupid has persisted over the past six months of COVID chaos as a recalcitrant RBA has screamed for Depressionberg’s aid, who has completely ignored the howls such that infrastructure investment has cratered.

Now we have the ABS entering the War of Stupid with its utterly broken Labour Force series. Via George Tharenou at UTS yesterday:

We still see higher unemployment ahead, but strong jobs could delay RBA

Given our weak growth outlook, we continue to expect unemployment to rise sharply ahead. However, since the Government extended temporary bankruptcy protection, and protection for directors from trading insolvent, for 3 months to Dec-20, we now expect the peak in unemployment to be later, perhaps not until 2021; albeit probably under 9% (vs our prior forecast 9¼%). But given the gain in jobs was entirely driven by sole traders, while employees and hours worked were ~flat, we still see a material risk of ‘proper QE’ by the RBA over coming months. However, the surprising jobs strength in August could see the RBA wait beyond October’s meeting, for another jobs print, before further easing. Elsewhere, we still expect further fiscal stimulus of $50bn+ in upcoming Budgets. Specifically, the most likely policies we see in the Commonwealth Budget on October 6 include: 1) JobKeeper/Seeker extension to Q2-20 costing ~$10bn; 2) Phase 2 tax cuts pull forward, probably to Jul-20 rather than now, costing ~$13bn; 3) Business investment allowance, including large business, costing ~$10bn; 4) Infrastructure spending, perhaps $40bn spread over several years, as per RBA Govnr. Lowe comments; 5) Housing support: while FHB access to super is not expected, extension/easing of Home Builder/grants or similar measures seems more likely.

Ahead we have a six-month drawdown of fiscal spending and other supports that equal 10% of GDP annualised. Treasurer Depressionberg is dropping an A-bomb of stupid.

The last thing that the RBA needs to do is to believe the ABS at this juncture. Forget its stupid headline unemployment rate. 9.5% is the real number before we account for 3m people on JobKeeper, many of whom are going to find that there is no job to go back to as post-COVID restructuring seizes business.

In fact, the RBA should these days focus only on the underemployment number given it is the one that leads wages and inflation. It remains disastrous even before the Depressionberg and ABS A-bombs of Stupid:

Or, take all of the adjustments out and you get Roy Morgan’s Second Great Depression:

The RBA needs to be talking furiously about a massive stimulus cannonball that vapourises ABS stupid on its way to the Australian people.

David Llewellyn-Smith
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