The Turnbull government can’t resist telling us about the record number of people who found a job in 2017.
It coincides with a record number of years the Australian economy has avoided a recession.
But oddly enough, it also comes at a time when there has been a record number of consecutive months the Reserve Bank has left the cash rate unchanged at a record low 1.5 per cent.
It’s a strange combination of records.
And the central bank’s stable policy stance could extend out as far as the eye can see.
Another economist joined the small but growing 2020 club this week – the year they believe an eventual rise in the cash rate could occur.
Macquarie Securities economist Justin Fabo has again revised his view on interest rates, worried that while the economy is improving, it’s just not improving fast enough.
Three months ago he had pushed out the timing of a rate rise to February 2019.
‘We are now of the view that prolonged monetary support will be necessary as the economy continues to adjust to a post-commodity-boom world,’ Fabo says in an analysis this week.
After a year with the jobless rate stuck around 5.5 per cent, despite over 400,000 jobs being created in 2017, Fabo does not expect the unemployment will have a ‘4’ in front of it until 2020.
Conventional wisdom puts the non-accelerating inflation rate of unemployment (NAIRU) – or simply full employment – at five per cent.
Last week, Reserve Bank governor Philip Lowe told a conference it is possible an even lower rate could be achieved if the five per cent mark is approached at a steady pace, rather than too quickly.
In a number of countries, estimates of the unemployment rate associated with full employment are being revised lower.
Fabo argues it’s likely to take at least 18 months of 3.25-to-3.5 per cent GDP growth for the unemployment rate to reach levels that will warrant higher interest rates.
If anything, the monthly Westpac-Melbourne Institute leading index for May, which indicates the likely pace of economic activity in three to nine months, suggests growth could slow from here after expanding to 3.1 per cent in the year to March.
Westpac economists expect growth to moderate to 2.7 per cent over 2018 and 2.5 per cent in 2019.
‘We continue to expect the RBA to keep the cash rate firmly on hold both this year and next,’ Westpac senior economist Matthew Hassan says.
Financial markets more broadly are not factoring in a rate rise until late 2019.
The cash rate last changed in August 2016, when it was cut from 1.75 per cent.
Government figures this week indicated demand for workers is also cooling, coinciding with Telstra shedding 8000 jobs and Toys ‘R’ Us closing all its stores around Australia with the loss of 700 jobs.
Another twist that could delay the RBA’s hand is declining house prices.
ANZ economists have revised down their house price forecasts, with the weakness persisting longer than they had expected.
They now see peak-to-trough price declines of around 10 per cent in Sydney and Melbourne.
Australian Bureau of Statistics data shows after the red-hot markets of recent years, Sydney prices dropped 1.2 per cent in the March quarter to post the first annual decline in six years of 0.5 per cent.
Melbourne values eased 0.6 per cent, but still showed an annual rise of 6.2 per cent.
However, ANZ is sticking to its call of a 2019 rate hike, but has pushed this back from May to August.
‘While the RBA does not specifically target house prices, we think it will be reluctant to start tightening policy if house prices are still falling,’ they say.
When the Reserve Bank eventually pulls the lever on a rate rise, it is likely to be a bit of a shock to some.
The last time there was a hike was in November 2010.