The Reserve Bank of Australia (RBA) today made the decision to again hold the cash rate at the current level of 4.10%. A better-than-expected inflation rate over the June quarter, as well as slowing retail sales growth points to cooling economic conditions. And while the unemployment rate is still at record low levels, the forward indicators of employment conditions all point to a much tighter jobs market going forward.
These forward indicators include SEEK jobs vacancy data for June 2023, which are down 22.1% compared to the year prior. In addition, NAB’s Monthly Business survey shows capacity utilisation is down to 83.5%, which is the lowest read since April 2022. Capacity utilisation is a very good leading indicator of the unemployment rate, and falling utilisation typically means a higher unemployment rate in three to six months’ time.
In a further sign of increasingly cooling economic activity, B2B trade payment defaults, as measured in CreditorWatch’s June Business Risk Index (BRI), was at record high levels and around 50% higher than this time last year. This means a record number of late payment defaults were lodged by one business against another, highlighting just how tight cash flow is for some companies. It appears that savings levels of both consumers and businesses are now having a considerable impact on consumers’ ability to spend on discretionary items and for some businesses to be able to pay their bills on time.
Looking forward, it is likely we will see upwards movement in the unemployment rate over the second half of the year, which will further reduce inflationary and wages pressure.