Australian wage growth is likely to pick up — but don’t start celebrating just yet

Australian wage growth is likely to pick up — but don’t start celebrating just yet

The RBA is banking on stronger wage growth to help lift inflation and economic growth in the years ahead.
Most leading labour market indicators all point to stronger wage pressures as labour market conditions strengthen.
While few see any meaningful lift in wages arriving any time soon, there are signs that the labour market is slowly tightening.
The unemployment rate, at 5.5%, is edging lower while broader measures of labour market underutilisation such as underemployment, measuring the proportion of Australians who have a job but who would like to work more hours, is also starting to decline, albeit from elevated levels.
It suggests that Australia’s record-breaking pace of job creation seen in 2017 is helping to tighten labour market conditions.
And this next chart also suggests that labour market conditions are tightening.
And as labour market conditions gradually tighten, there are signs emerging that average advertised salaries are also starting to increase.
“The Reserve Bank’s central scenario is that, over time, this will become a more general story.” While Lowe appears confident that ongoing strong demand for workers will help to lift wage pressures more broadly in the period ahead, markets will get to gauge the other side of the equation — labour supply — when the ABS releases Australia’s jobs report for February.
Even with the gradual reduction in labour market underutilisation seen in recent years, current levels of annual wage growth remain well below what they were during similar levels of underutilisation in the past.
Should that trend continue, it suggests that any lift in wage pressures from lower levels of labour market slack is likely to be subdued.

Fed Watching Basketball-style: Point-Spreads or Teamwork?

Fed Watching Basketball-style: Point-Spreads or Teamwork?

Financial traders are as focused on the FOMC rate hike probability as basketball gamblers are on in-game win probabilities.
Likewise, investors want to know how Fed Coach Powell and his team will make decisions in 2018.
The Fed calls this average “inflation.” But, today’s price changes are not like 1970s monetary-caused inflation.
Government policy can change prices — regulatory policy (tariffs, banking, health care, or zoning), taxes, and subsidies.
Question #2 Why do FOMC members wonder about the mystery of “missing inflation?” Investors read data showing the average price for durables has been falling since 1995 – global costs have been falling for decades.
But, health care price increases have been moderating since 1996, with rises and falls.
Question #3 What power does the FOMC have to raise prices that are lower because of improved technology, a change in regulation, or lower taxes?
Question #4 Why does the FOMC target the average price of all products when durables are fastest growing, and people buy more when prices fall?
Question #5 Does the reality of lower prices for real people change policy?
Question #6 What is the Fed’s primary guide for the Federal Funds rate?

Why the stock market may find an ally in the Fed

Why the stock market may find an ally in the Fed

The Fed funds futures market is currently pricing in three rate increases in 2018, the same as the Fed policy makers are projecting, but investors worry that the FOMC, which is viewed as decidedly more hawkish than last year’s lineup, may signal a fourth hike is in the offing via their so-called dot-plot forecast.
The stock market’s preference for three rather than four rates hikes was made apparent in the sharp February selloff that tipped the S&P 500 SPX, +0.16% and Dow Jones Industrial Average DJIA, +0.50% into correction territory—a drop of 10% from a recent peak.
“The dots are likely to shift around, but we are skeptical that we will see four hikes penciled in for 2018.
Read: Powell will use press conference to counterbalance hawkish undertone of Fed’s forecasts “Instead, what we are likely to see is a coalescing around three hikes this year.
After all, there are six officials currently below three hikes for 2018,” he said.
And Dutta argued that there is still considerable slack in the labor market.
“While some at the Fed appear to be enamored with the idea that the labor market is beyond full employment, the latest figures don’t really support this view,” he said.
“The continued rise in prime-age participation rates suggest that more workers can be drawn into the labor force provided the recovery continues,” Dutta said.
Since the Federal Reserve has a dual mandate of full employment and inflation, allowing more workers join the workforce may prompt officials to rethink what an optimal unemployment rate is.
“If the Fed reiterates a balanced set of risks and doesn’t shift the median up to four hikes this year, it will likely take some of the air out of the hawkish Fed trade,” Dutta said.

Italy’s election: How the economy is performing

Italy’s election: How the economy is performing

Italy’s economy has started to expand once again, but is still one of the worst performers of the countries in the eurozone.
Italy vote: Who’s who and why it matters The parties are battling to prove they can take Italy’s economy, industry and job market back to pre-crisis levels.
The road to full recovery has been much harder than many expected.
Slow growth Economic growth – in terms of GDP per head – has been picking up since 2014.
The “Made in Italy” brand has been rejuvenated thanks to an increase in exports and international interest.
Part-time jobs In 2014, Matteo Renzi’s Democratic Party started its job reforms, which have been credited with creating almost one million jobs.
However, the latest Italian Institute of Statistics (ISTAT) figures show that nearly 60% of them are part-time roles.
Unemployment The level of part-time work means much lower job security compared with other European countries.
Increasing poverty Although Italy presents itself as one of the top three European economies, high rates of unemployment have caused a steep rise in poverty.
Battle against taxes The top rate of income tax in Italy is one of the highest in Europe, well above the 39% average for top rates across the 28-members of the Union.

The 23 cities with the best quality of life in the world

The 23 cities with the best quality of life in the world

Every year Mercer, one of the world’s largest HR consultancy firms, releases its Quality of Living Index, which looks at which cities provide the best quality of life.
The ranking is one of the most comprehensive of its kind and is carried out annually to help multinational companies and other employers to compensate employees fairly when placing them on international assignments, according to Mercer.
London and New York do not make it anywhere near the top of the list.
Looking at 450 cities across the world, Mercer takes into account the following metrics to judge which cities made the list for the best quality of life: Political and social environment (political stability, crime, law enforcement) Economic environment (currency-exchange regulations, banking services) Socio-cultural environment (media availability and censorship, limitations on personal freedom) Medical and health considerations (medical supplies and services, infectious diseases, sewage, waste disposal, air pollution) Schools and education (standards and availability of international schools) Public services and transportation (electricity, water, public transportation, traffic congestion) Recreation (restaurants, theatres, cinemas, sports and leisure) Consumer goods (availability of food/daily consumption items, cars) Housing (rental housing, household appliances, furniture, maintenance services) Natural environment (climate, record of natural disasters) Here are the top 21 cities on the planet, according to Mercer.
Lianna Brinded contributed to an earlier version of this post.
Reuters/Chris Wattie Markus Schreiber/AP PomInOz / Shutterstock Kristoffer Trolle/Flickr

CBA sold credit card insurance to jobless people who couldn’t use it

CBA sold credit card insurance to jobless people who couldn’t use it

The Commonwealth Bank sold insurance for credit cards to people who couldn’t claim benefits, a senior bank executive told the Royal Commission into Financial Services.
Under questioning, Clive van Horen, the executive general manager of retail products, agreed that credit card insurance was sold to people who couldn’t claim because they didn’t have a job, including those on unemployment benefits, pensioners and students.
Earlier, a witness gave evidence that she had been pre-approved by CBA for a credit card with a $4000 limit when she was on unemployment benefits.
CBA sold her the insurance even though she gave the bank documentation — her Centrelink income statement — showing she didn’t have a job.
The then-unemployed mother says she tried to cancel the insurance multiple times without success.
Shen she did eventually succeeded in cancelling the insurance she was offered a refund of $88.73.
Up to 140,000 customers would be refunded $26 million.
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The RBA is uncertain and in no rush to move interest rates

The RBA is uncertain and in no rush to move interest rates

The minutes of the RBA’s March policy meeting offered very little new information for markets.
It remains optimistic about the Australian and global economy yet remains uncertain about the outlook for Australian household spending and wage growth.
Until that uncertainty is resolved, interest rates are likely to remain unchanged.
The bank remains optimistic on the outlook for the global economy, along with non-mining business investment and labour market conditions in Australia.
However, as has been the case for several months, it remained “uncertain” about the outlook for household consumption, the largest and most important part of the Australian economy.
Of the 1,300 odd words within the March minutes, perhaps the most important, at least when it comes to the outlook for interest rates, came from the three paragraphs below (our emphasis in bold): Employment had grown strongly and the unemployment rate had fallen over the preceding year.
Forward-looking indicators suggested that spare capacity in the labour market would continue to decline gradually over 2018 and, as a consequence, wages growth was expected to rise gradually.
Tighter credit standards had been helpful in containing the build-up of risk on household balance sheets.
Over 2018, GDP growth was expected to exceed potential growth and CPI inflation was expected to increase gradually to be a little above 2%.
And given the combination of high household indebtedness, a slowing housing market and weak wage growth, it is also uncertain as to whether the economy will grow as fast as its prior forecasts for “a little above 3% over the next two years”.

Which companies face higher labor costs and what it means for investors

Which companies face higher labor costs and what it means for investors

Jeffry Businesses are under pressure to raise worker pay against the backdrop of the lowest unemployment rate in 17 years and widespread complaints of labor shortages.
But some industries can handle higher labor costs better than others.
The tightening labor market is reflected in worker paychecks.
Read: The Fed is hogging the attention, but don’t forget this critical number for the economy The three industries most susceptible to higher labor costs are retail, health care and finance, Wells Fargo found.
These are people-centric fields in which labor is one of a company’s largest costs.
Here’s the facts How are companies responding to tighter labor markets?
Hourly wages typically increase as much as 4% annually when the labor market is as tight as it is now.
Most companies appear well positioned to absorb somewhat higher labor costs — that is, bigger paychecks for workers — without trying to stick it to consumers.
Corporate profit margins are also high, especially in fields such as manufacturing in which labor is just a small portion of operating costs.
Firms in industries with low profit margins that are most sensitive to the price of labor are the ones most likely to struggle.

The Student Debt ‘Crisis’ Is Students’ Fault, And They Shouldn’t Get A Bailout

The Student Debt ‘Crisis’ Is Students’ Fault, And They Shouldn’t Get A Bailout

Yet while 45 million Americans are on the hook for more than $1.4 trillion in student debt, Americans should realize that millennials don’t need a government bailout or intervention.
The student debt crisis isn’t as bad as it seems, and it’s a “crisis” of our own making.
Choices Have Consequences The average college graduate leaves school with around $31,000 in debt, which certainly sounds like a lot, but that’s just a monthly payment of approximately $300.
For people who make this much, it’s not very difficult to pay a few hundred dollars per month for student loans.
But if you major in philosophy or gender studies, you might struggle to find any job in your field, let alone a well-paying one.
Maybe you went to an expensive private college for four years, or got a graduate degree.
But they don’t need the government’s help to pay back their debt.
I’d Rather See a Concert than Pay My Loan Many millennials aren’t paying back their student loans.
In 2016, 1.1 million graduates defaulted on their loans for the first time, yet their ability to make payments might not be the problem.
Nearly a third of students polled planned to use some of their student loan money to pay for their spring break trips, while 23 percent said they had used loans to purchase alcohol, and 6 percent said they used the money for drugs.

Facebook cofounder Chris Hughes: US needs universal basic income

Facebook cofounder Chris Hughes: US needs universal basic income

As the co-founder of Facebook, Chris Hughes joined the ranks of the nation’s Top 1% by the time he was in his mid-20s.
A guaranteed basic income that would provide $500 a month to every American worker making less than $50,000 a year.
Your solution to income inequality is a universal basic income system for working Americans.
The single most successful program to support economic mobility and fight poverty in the United States: is the Earned Income Tax Credit.
It would help 90 million Americans make ends meet and lift 20 million out of poverty overnight.
It is time to expand the definition of work to recognize the contributions millions of Americans are already making, but not getting paid for.
What would you say to those in the 1% who argue that they’ve worked hard for their wealth and shouldn’t be responsible for supporting those who are less successful?
Americans don’t want handouts, but they do want the basic security of knowing that if you’re working, you’re not going to live in poverty.
But every step along that journey requires cash of some sort – to pay for a security deposit on an apartment, the gas money to interview for a job, or for childcare while you’re in classes at the local community college.
Right now, people have little cushion, and poor and even middle-class people have no savings to pay for basic expenses.