Australia: Jobs & wages data hog the spotlight

  • The highlights in the coming week are the all-important July jobs report and June quarter wage figures.
  • But the week kicks-off on Tuesday when the RBA Board issues minutes of the meeting held on August 3. At the meeting the Board left interest rates unchanged, but it re-affirmed its decision to slow its bond-buying program (Quantitative Easing, QE) from early September, reducing its weekly bond purchases from $5 billion to $4 billion until at least mid-November.
  • Much to the surprise of economists, the central bank stuck with its planned ‘tapering’ of bond purchases, despite the prospect of a Covid-19 delta virus-induced contraction in the economy in the September quarter. The RBA later said in its Statement on Monetary Policy that additional QE now would only help the economy next year, with “fiscal policy the more appropriate instrument for providing support.”
  • But in parliamentary testimony last week, Governor Philip Lowe emphasised that policymakers “are prepared to act in response to further bad news on the health front that affects the outlook of the economy in the year ahead,” retaining a “flexible approach to the rate of bond purchases.”
  • In terms of economic data on Tuesday, Commonwealth Bank (CBA) Group economists issue the July Household Spending Intentions report. ANZ and Roy Morgan also jointly release the weekly consumer confidence survey. And overseas arrivals and departures figures from the Bureau of Statistics (ABS) are issued for June.
  • On Wednesday, CBA Group economists expect the Wage Price Index (WPI) to lift by 0.6 per cent in the June quarter to be up by 1.8 per cent on a year ago.
  • Also on Wednesday, the National Skills Commission’s final July reading on job vacancies is issued. Preliminary ads fell 3.0 per cent with NSW vacancies 10.3 per cent lower.
  • On Thursday, CBA Group economists expect the unemployment rate to remain unchanged at 10½-year lows of 4.9 per cent in July with 10,000 jobs added and the participation rate steady at 66.2 per cent. In our view, the damage to the labour market will most likely show up in the August and September job reports. And hours worked and workforce participation are both expected to fall sharply with underemployment lifting due to lockdowns.
  • Also on Thursday, the ABS publishes “Average Weekly Earnings” data over the six-month period to May 2021.
  • On Friday, RBA Assistant Governor (Financial Markets) Christopher Kent delivers a speech at 9.05am AEST.

Overseas: China activity data, Reserve Bank NZ and US Federal Reserve minutes in the limelight

  • The week kicks-off in China on Monday with an array of economic data due. Under pressure from new outbreaks of the Covid-19 delta variant, economic activity is expected to decelerate in July. Retail sales could fall from an annual growth rate of 12.1 per cent in June to 10.9 per cent in July. Industrial production may ease from an 8.3 per cent annual growth rate to 7.9 per cent in July. And fixed asset investment may have risen by 11.3 per cent in the first seven months of 2021 when compared with a year ago. And new home prices and jobs data also feature.
  • On Monday, the New York Empire State manufacturing index is tipped to ease from 43 to 25.7 in August.
  • On Tuesday, the weekly Johnson Redbook chain store sales figures are issued with the National Association of Homebuilders (NAHB) housing market index, retail sales, industrial production and business inventories figures. Economists expect retail spending to fall 0.2 per cent in July after a surprise 0.6 per cent gain in June due to strong restaurant sales. And industrial production could lift 0.6 per cent in July with shortages of key inputs and labour restraining output amid a dearth of semiconductors in the motor vehicle sector.
  • On Wednesday, the Reserve Bank of New Zealand (RBNZ) could hike the official cash rate by 25 basis points.
  • On Wednesday in the US, weekly mortgage applications data is scheduled with housing starts and building permits for July. Residential home construction is being impacted by supply chain constraints and labour shortages. Starts are tipped to fall by 2.2 per cent in July to an annual rate of 1.608 million units. And applications to build for future construction are expected to lift by 1.0 per cent – also to an annual rate of 1.61 million units.
  • Also on Wednesday, the US Federal Reserve Open Market Committee (FOMC) issues its July 27-28 meeting minutes. While acknowledging that measures of US inflation had risen faster-than-expected, Fed Chair Jerome Powell said it was too soon to scale-back the central bank’s monthly bond purchases. But the strong jobs report in July – with 943,000 jobs added – could mean that policymakers are less ‘dovish’ when they meet in September – following the Fed’s Jackson Hole symposium later this month. US employment of 146.8 million persons is back at the levels seen in late 2017 when the Fed hiked interest rates.
  • On Thursday, weekly data on claims for unemployment benefits (initial jobless claims) are issued with the Philadelphia Federal Reserve manufacturing index and Conference Board leading index. The ‘Philly Fed’ gauge is tipped to lift from 21.9 to 24.2 in August with the leading index up 0.8 per cent in July.
  • In China on Friday, 1-year and 5-year loan prime rates could remain steady at 3.85 per cent and 4.65 per cent.

Originally published by Ryan Felsman, Senior Economist, CommSec