For the full picture, download the report – Australian Markets Weekly 16 September 2019.

• Unemployment has edged higher since earlier this year as strong employment growth has failed to keep pace with even stronger growth in the supply of labour, with the participation rate reaching a post-WW2 high of 66%.  Analysing the age split of the labour market, the participation rate is up across the board from the most recent national low in 2016, although the increase has been driven by older people, especially those in their early 60s.
• We think the increase in participation reflects a mix of economic, public policy and demographic factors, namely: (1) a desire to lift incomes, which have stagnated in real terms over recent years; (2) high debt-servicing ratios given record household gearing; (3) tighter access to the age and disability support pensions, including a lift in the eligibility age; and (4) rising longevity risk and relatively modest superannuation balances.
• In our view, the public policy and demographic factors are likely to persist, where international work suggests increased participation by older workers contributes to a lower NAIRU and a flatter Phillips curve, pointing to inflation and interest rates staying lower for longer.

The week ahead – AU RBA minutes, unemployment; NZ GDP; US FOMC rate cut

• On Tuesday, we think the minutes of the RBA’s September Board meeting are likely to emphasise a range of global and domestic downside risks to the outlook, which could surprise markets given the relatively bland post-meeting statement. Locally, the labour market remains key for the RBA’s outlook, where NAB expects Thursday’s labour force survey to show the unemployment rate edged higher to 5.3%, with moderate employment growth of 17k (consensus: 15k, 5.2%).
• Internationally, investors are seeking clarity on the impact of the weekend terrorist attack on Saudi oil production.  We expect Thursday’s NZ GDP to expand just 0.3% in Q2, or 1.9% over the past year (market: 0.4%; RBNZ: 0.5%).  Also note the potential for non-trivial historical revisions. In the US, the FOMC is expected to cut the funds rate from 2-2.25% to 1.75-2% on Wednesday and signal a preparedness to do more as needed, easing policy further mainly as insurance against the continuing trade war. In the UK, a supreme court ruling is due on the legality of PM Johnson’s decision to suspend Parliament until 14 October.  The BoJ is expected to keep the policy rate unchanged at  0.1% on Thursday.

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