In mid-2000, the Reserve Bank held a two-day conference in Sydney to talk about the economic developments of the 1990s.
It wanted to know: in what ways was the decade different from its predecessors? What were its successes and failures, and why did they occur?
It published the conference papers afterwards.
In the introduction to the papers, written by David Gruen (who now heads the Bureau of Statistics), Dr Gruen said the dictum that “a week is a long time in politics” surely did not apply to economics.
How does this compare to the ‘recession we had to have’?
It’s close to 30 years since Australia’s last recession, which saw vast numbers of people lose their jobs or struggle to break into the workforce, as another recession looms, writes Stephen Long.
“The significance of economic events often remains opaque at the time, and the process of separating the important from the ephemeral requires a period more like a decade than a week,” he wrote.
It was a wonderful observation.
In your typical business cycle, when the pace of commercial activity is unhurried, and life shuffles past at a low interest rate, one year can be hard to distinguish from the next.
But it’s different in a crisis.
Remember March? Every week in March felt interminable.
A week became a very long time as we struggled to understand the daily bulletins of coronavirus news and adjust to the reality of the lockdown, and as hundreds of thousands of workers lost their jobs overnight while others began working from home.
Hundreds of thousands of workers lost their jobs overnight after Australia went into lockdown to ward off the coronavirus pandemic.(ABC News: Housnia Shams)
A few months later and we’re hyper-aware that each major piece of new economic data is more significant than it typically would be.
However, Dr Gruen’s deeper point still stands — it may take economists a decade before they appreciate how significant each bit of data has been this year.
By then the Reserve Bank will be ready to hold a future conference on “The Australian Economy in the 2020s”.
Labour force data expected to show further deterioration
Having said that, there will be important data releases this week.
The focus for economists will be the May labour force figures, to come on Thursday. They’re expected to show a further deterioration in the labour market.
Australia’s official unemployment rate has risen this year from 5.1 per cent in February to 5.2 per cent in March and to 6.2 per cent in April.
Economists think it jumped again in May, to 7.5 per cent or higher.
Commonwealth Bank senior economist Belinda Allen estimates 100,000 people lost their jobs last month, after a staggering 594,000 lost their jobs in April.
It is estimated that 100,000 people lost their jobs in May due to the coronavirus pandemic lockdown.(ABC News)
She thinks the unemployment rate will jump to 7.7 per cent.
“Better than expected US payrolls data out last week shows the challenge of forecasting in such unprecedented times, especially as economies reopen,” Ms Allen wrote in a note to clients.
“[But] we expect a further deterioration in the labour market in Australia in May.”
Ms Allen says part of the reason why the official unemployment rate will rise to 7.7 per cent will be technical.
“Part of this will be driven by a lift in the participation rate from 63.5 per cent to 64 per cent,” she said.
“With the virus under better control, and more parts of the economy reopening, we do believe more people will re-enter the labour force and look for work.”
Payroll and wages data reveal state of economy during coronavirus
On Tuesday, the Bureau of Statistics will release its weekly payroll jobs and wages data for the week ending May 30.
This experimental data, which is based on the Tax Office’s single touch payroll system, has been introduced by Dr Gruen to help economists better understand what’s happening in the economy during the coronavirus lockdown.
It will count the number of jobs in the economy, not the number of employed. In Australia, the number of people with more than one job is roughly 6 per cent.
Also on Tuesday, the ABS will release its residential property price indexes for Australia’s eight capital cities, based on March quarter data.
The data will show what happened to property prices over the summer, as the bushfires devastated so many coastal communities.
ABS will release its residential property price indexes for Australia’s eight capital cities.(Giulio Saggin: ABC News)Reserve Bank board minutes to provide clarity about downturn
On Tuesday, the minutes of the Reserve Bank board’s meeting from earlier this month will also be released.
Interestingly, the RBA Governor Philip Lowe has allowed some optimism to creep into his tone in recent weeks, saying “it is possible that the depth of the downturn will be less than expected”.
The minutes will hopefully provide more context for his optimism.
Ms Allen says bond markets will also be looking for news about the RBA’s bond buying program.
“Any discussion around the RBA’s balance sheet and quantitative easing program will be watched with no bond purchases conducted since May 6, despite some slight uptick in both three-year and 10-year Australian Commonwealth Government Securities yields,” she said.
Australian dollar to keep strengthening?
Westpac’s economics team has been keenly watching the performance of Australia’s dollar recently.
The dollar has been on a tear, jumping from its lowest level in nearly two decades of 55.1 US cents in mid-March to break above 70 cents this month — an increase of 27 per cent.
The dollar has risen so quickly largely because China’s economy has started waking from its COVID-19 coma, so its hunger for Australia’s mineral resources (particularly iron ore) has returned with gusto.
Iron ore prices have been soaring, due to the increased demand from China and severe supply disruptions in Brazil, which is one of the world’s major iron ore suppliers.
Iron ore prices have been soaring as China’s demand for Australia’s mineral resources have returned with gusto.(Reuters: David Gray)
Until recently, Westpac’s team was forecasting the dollar would end this year worth 68 US cents.
But it officially changed that forecast last week, to 72 US cents.
It also thinks the dollar will end 2021 worth 76 US cents, as global growth turns around sharply next year from -3 per cent to positive 5 per cent, with China recording 10 per cent growth.
So watch that space.