Latest / The SME Stream / Mark Smith ASB Senior Economist ahead of today's employment data release

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Mark Smith ASB Senior Economist ahead of today's employment data release · The SME Stream

• 0:00
  Speaker 1: It's a big day today for mortgage holders. Basically, are
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  Speaker 1: enough people out of work to force the ocr down,
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  Speaker 1: thereby taking the pressure off our mortgages. Unemployment data for
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  Speaker 1: the June quarter is out today. The Reserve Bank is
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  Speaker 1: expecting unemployment rate to rise to four point six percent.
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  Speaker 1: It's currently at four point three percent for quarter one,
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  Speaker 1: A n Z, ASB, Kiwibank, Westpac they all predict an
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  Speaker 1: increase to four point seven percent, b in Z saying
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  Speaker 1: four point six joining me in OW is ASB Senior
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  Speaker 1: economist Mark Smith, Mark, good morning, good morning. What's the
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  Speaker 1: magic number? Do you think what is the magic number
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  Speaker 1: we would need to see today in order for their
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  Speaker 1: to be a cut, say next week?
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  Speaker 2: Well probably that's the higher the numbers, the more likely
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  Speaker 2: you'd like to see a cat. It's not just the
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  Speaker 2: unemployment rate, but also things like labor costs and wages
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  Speaker 2: that the Reserve Bank are looking at very closely.
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  Speaker 1: Will they how how well? To what extent is it
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  Speaker 1: the job's data versus that sticky domestic infation that we've
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  Speaker 1: been watching.
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  Speaker 2: Yeah, I think what we've seen is we've gone from
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  Speaker 2: a period a few years ago where firms have been
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  Speaker 2: hoarding labor's now a where firms are actually shedding labor
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  Speaker 2: because the demind of environment is so weak and they
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  Speaker 2: having to do that. Also, firm's profitability now is very dire,
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  Speaker 2: you know, the weakest in about thirty years as the
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  Speaker 2: share of incomes, So they're really in position now where
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  Speaker 2: they can't really afford to hold on to staff and
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  Speaker 2: had to let them go. Now, when that happens, what
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  Speaker 2: we'd like to see is this labors share of income
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  Speaker 2: is likely to fall and inflation will fall as well.
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  Speaker 2: So all of these things are interlinked. But really when
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  Speaker 2: we see more spare capacity growing in a labor market
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  Speaker 2: with the unemployment rate going up, that meets that inflation
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  Speaker 2: will eventually go down, and that meant that means their
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  Speaker 2: official cash rate needs to come down as well.
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  Speaker 1: The Aussies are playing hardball yesterday the Reserve Bank there
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  Speaker 1: no cuts till twenty twenty five, that sort of thing.
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  Speaker 1: Do you do you believe them?
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  Speaker 2: Well, it's hard to say at the moment. Bear in
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  Speaker 2: mind the Australian official their cash rate is four point
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  Speaker 2: three five said ours is five and a half, so
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  Speaker 2: that they're completely different. Also, the Australian economy is doing
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  Speaker 2: better than the New Zealand economy. For example, the Australian
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  Speaker 2: housing market is still doing very well. We're here, it's
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  Speaker 2: down the dumps. New Zealand is flitting in and out
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  Speaker 2: of recession. I would like to see a size or
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  Speaker 2: contraction economic activity in the middle of the share So
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  Speaker 2: things in New Zealand are die and we're really to
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  Speaker 2: see the OCI come down how.
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  Speaker 1: Much because they're obviously the committee that decides this, they're
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  Speaker 1: all humans and they can see themselves, presumably how much
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  Speaker 1: hurt there is out there on main street? How much
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  Speaker 1: do they do you reckon? They actually listen to that noise,
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  Speaker 1: you know, to that political pressure as well.
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  Speaker 2: Well. They're obviously continent of what's happening around them. You know,
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  Speaker 2: it's it's pretty clear how weak things are. But really
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  Speaker 2: they've got an inflation target to meet first, and at
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  Speaker 2: the moment, inflation is at three point three percent. Now,
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  Speaker 2: if you take out costs, for example, it's already below
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  Speaker 2: three percent. So from that point of view, yes, they
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  Speaker 2: should become in the ocr but they want to make
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  Speaker 2: sure that inflation will settle below three percent before coming that.
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  Speaker 2: You're right, you look around you the unemployment rate is
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  Speaker 2: going up. We expect to hit around five and a
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  Speaker 2: half percent by the end of the year and it's
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  Speaker 2: on track to move around six percent by five both
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  Speaker 2: at the next year as well. So things that are
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  Speaker 2: certainly calling, and there are certainly needs for the SEO
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  Speaker 2: to come down.
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  Speaker 1: Mark. Thank you. It's Mark Smith, the asp Senior Economist.