Is Australia headed for a continuation of high employment, and therefore a continuation of the current high interest rates? Or are we set for a period of steeply rising unemployment and further big rate cuts?
Or, put another way, is the Roy Morgan research group right that unemployment actually jumped sharply in January (Driving into rocky jobs terrain, February 6) or is the government statistician right that unemployment in January actually fell to 5.1 per cent?
As I move around the non-mining business community I am seeing a fundamental change to labour hire and so I believe Morgan picked up the actual trends faster than the official statistician.
After waiting for over a year, business in Australia is starting to shed labour on an extensive scale. I fear not enough of them are undertaking the fundamental organisational changes that develop a better way of doing things. Rather they are adopting the old fashioned mechanism of simply cutting labour. But as time goes on more and more Australian companies will realise that they must use the new technologies to re-engineer their business.
At the weekend the current 'form' economist, Westpac’s Bill Evans, was also on the Morgan side and in Business Spectator declared that labour markets would weaken markedly despite the strong employment report for January (WEEKEND ECONOMIST: Gloomy global growth, February 18). You will remember that last year after Business Spectator warned the Reserve Bank against raising interest rates Bill Evans joined the cause and actually forecast a one per cent fall in official rates. Together we helped save the Reserve Bank from what would have been a disastrous mistake.
So it’s no surprise that you find me on the Evans side. If we are right then official interest rates are likely to fall. Evans is expecting the rate fall to be half a per cent.
Stock markets are predicting a period of more stability in Europe and if the market is right we may see further falls in the cost of bank borrowing abroad. If that happens the pressure for the government to intervene will recede (Breaking up a rates ruckus, February 14).
However, if we have a continuation of the situation where official interest rates fall and banks do not reduce interest rates by almost the same amount then the pressure on government to find a solution will escalate.
Meanwhile, the debate over what is really happening in Australia goes to the heart of the immediate future of non-mining Australia. I hope the statistician is right and people like Bill Evans, Morgan Research and me are wrong. Unfortunately I think the statisticians have been a bit slow and in the next month or so will pick up on what is really happening.