No interest rate cut from the Reserve Bank yesterday and no pay rise for low paid workers from the Fair Pay Commission.
Both were sort of expected, especially the Reserve Bank’s decision.
In fact the RBA’s post meeting statement was almost the same as the post meeting statement from the June board meeting .
The upshot is that the RBA is looking at the economy, which is doing what it should be doing after record rate cuts, stimulus and a 3% cash rate, the lowest in 49 years, and easing inflation.
China continues to grow, credit remains tight, demand from business for credit is weak and in fact easing; only the housing sector seems alive, thanks to the stimulus moves for first home buyers.
"A pick-up in housing credit demand suggests stronger dwelling activity is likely later in the year. House prices are tending to rise.
"Business borrowing, on the other hand, has been declining, as companies postpone investment plans and seek to reduce leverage in an environment of tighter lending standards.
"Large firms have had good access to equity capital, which is assisting in strengthening their financial structures.
"Monetary policy has been eased significantly. Market and mortgage rates are at very low levels by historical standards, despite recent small increases.
"Business loan rates are below average. The effects of these changes will still be coming through for some time yet. Fiscal measures are also providing considerable support for demand."
But there was a message to the interest rate bulls in the market who claim there will be at least two rate rises of 0.25% over the next year (judging by futures market prices).
"Economic conditions in Australia have to date not been as weak as expected a few months ago. But output has been sluggish and capacity utilisation has fallen back to about average levels, with some further decline likely over the rest of the year.
"Weaker demand for labour is leading to lower growth in labour costs. These conditions should see inflation continue to abate over the period ahead."
The RBA repeated its previous statement that it sees the falling rate of inflation (helped by a strong Australian dollar) to allow room for more interest rate cuts.
"The Board’s current view is that the outlook for inflation allows some scope for further easing of monetary policy, if needed.
"In assessing how it might use that scope, the Board will continue to monitor how economic and financial conditions unfold and how they impinge on prospects for a sustainable recovery in economic activity."
And Australia’s lowest paid workers?
No joy. Last year low paid workers across Australia received a $21.66 per week pay rise from the Commission, taking the minimum wage to $543.78 a week.
The ACTU had argued for another $21 per week rise, which would have lifted the minimum wage to $564.78 a 38-hour work week, while the Australian Chamber of Commerce and Industry opposed any wage increase.
About 1.3 million Australians, such as cleaners, childcare workers and those in hospitality, work under minimum wage conditions.
Commission chairman Ian Harper said the decision had been a very difficult one.
”These are uncertain times for the economy and for the Australian labour market, and in the commission’s view caution is warranted at this time in the setting of minimum wages,” Professor Harper said in a statement
”This is not the time to risk the jobs of low-paid Australians by increasing minimum wages.”
In other words, it was a pay vs. jobs argument and jobs preservation won out. The unions will moan and groan, of course.
"Professor Harper said a lesson from this experience is that decision-makers should act early to limit the increase in unemployment and support employment.
“While some commentators are pointing to the ‘green shoots’ of a recovery, even these observers agree that unemployment will rise further before it begins to fall.
“We note that the Reserve Bank, the Australian Treasury, the OECD and the IMF all believe unemployment in Australia will rise further over the next 12-18 months.”
"The 2009 decision is set in a very different economic climate to the Commission’s previous three wage decisions.
“On each previous occasion the economy was robust with evidence of strong growth and rising demand for labour.
"Any minimum wage increase was readily absorbed and any negative employment effect was short-lived. As a result, the Commission was able to announce real wage increases for Australia’s lowest paid workers.”
"He said there is far greater potential for an increase in minimum wages this year to adversely affect employment given the number of Australians in work is falling and unemployment is rising."
Tomorrow we will see how bad the jobs picture is with June’s employment numbers with a 20,000 fall in the number of people employed and a rise to 5.9% for the unemployment rate tipped by the market.
