Cliff Notes: Partial Data Challenges

Key insights from the week that was.

In Australia, the September Labour Force Survey was one of two key data releases in the run-up to the RBA’s November decision. The release points to a bit more labour market slack building during the month. Employment printed in line with Westpac’s forecast (+15k), extending an easing in the growth pace amid an underlying slowdown in ‘care economy’ jobs. However, this gain only partially made use of the increase in the size of the labour force as the participation rate lifted back up to its year-average of 67.0%. The unemployment rate consequently jumped from 4.3% to 4.5%, the highest rate since just after the ‘delta’ outbreak of 2021.

Compared to the RBA’s August forecasts, employment is already on a weaker footing, and the unemployment rate now looks likely to overshoot their projections. This lends weight to our view that there is still a good chance the RBA will cut rates in November – a view supported by the swift reaction in market pricing, the chance of a 25bp November cut lifting from 40% to 78%. That said, the Q3 CPI (due October 29) will be the ultimate determinant of the November decision.

In the meantime, the latest NAB business survey points to an ongoing recovery in economic growth – business conditions holding steady in September around the long-term average, allowing confidence to start moving up from ‘neutral’ to ‘cautiously optimistic’. Our latest Market Outlook delves into our updated economic growth forecasts and the tension with a softening labour market – ‘jobless growth’ being a key risk as aggregate activity becomes less reliant on the job-intensive care economy.

In the US, with almost all official data indefinitely delayed due to the government shutdown, the Fed’s Beige Book was the key release. Contacts across the districts reported that overall economic activity was perceived to have “changed little on balance since the previous report” but that “consumer spending, particularly on retail goods, inched down in recent weeks”. “The outlook for future economic growth varied by District and sector. Sentiment reportedly improved in a few Districts, with some contacts expecting an uptick in demand over the next 6 to 12 months. However, many others continued to expect elevated uncertainty to weigh down activity.”

On the labour market, “Employment levels were [viewed as] largely stable in recent weeks”, though in “most” districts, more employers “reported lowering head counts through layoffs and attrition, with contacts citing weaker demand, elevated economic uncertainty, and, in some cases, increased investment in artificial intelligence technologies”.

Regarding inflation: contacts observed the impact of tariffs on input costs alongside a rise in services like “insurance, health care, and technology solutions”; that said, the degree to which these costs were passed onto consumers differed by district and product sold. The latest threat from President Trump of a further 100% tariff on Chinese goods from 1 November and the introduction of additional US port fees for China-linked ships (and we might add China’s in kind retaliation against US-linked ships) highlights that tariff uncertainties are likely to linger for US inflation for an extended period – a reality the FOMC will need to factor in.

For China meanwhile, as the press headlines repeated US / China trade relations fact and rumour, data remained consistent with existing trends, consumer prices falling 0.3%yr and producer prices down 2.3%yr in September. In recent months, price momentum has struggled to pick up despite authorities’ “anti-involution” policies – aimed at curbing overproduction. This development not surprising; it will take time for the policies and associated rhetoric to impact the economy. At the consumer level, if inflation is to return sustainably to 2-3%yr, there is also need for fiscal support targeting household demand. Detail on the next wave of support and its likely timing should come next week as China’s next Five-Year plan to 2030 is released. Looking further ahead, key themes and forecasts for China, the rest of Asia, Europe and the US can be found in our October Market Outlook.