Key insights from the week that was.
It was a relatively quiet week in Australia, the only notable data release being the Q3 Wage Price Index. It printed in line with RBA and market expectations, rising 0.8% (3.4%yr). Wage dynamics vary by sector, private sector wages growth falling to its slowest pace in three years (3.2%yr) as public sector wages growth accelerated (4.3%yr), partly buoyed by base effects. Outcomes also varied by bargaining stream, with the contribution from individual arrangements trending lower as enterprise agreements added more.
Overall, the data is broadly consistent with a labour market that poses little risk to aggregate inflation, but which points to an ongoing rebalancing of jobs growth across market and non-market sectors. Taking a longer-term perspective, labour market composition is also at the heart of the debate around AI and automation, as discussed by Chief Economist Luci Ellis in this week’s note.
September’s US employment report proved a vote of confidence in their economy’s underlying health, consistent with the expectations of the FOMC. Nonfarm payrolls rose 119k in the month, partly offset by a 33k reduction in July and August’s cumulative gain. The 3-month average is now 62k, the top of the estimated range consistent with labour demand and supply being in balance. In September, the unemployment rate rose from 4.3% to 4.4%, but this was because of higher participation not job shedding. Hourly earnings growth was healthy but benign for inflation, wages up 0.2% in September and 3.8%yr.
The just released minutes of the October FOMC meeting highlight that, at the time of their deliberations, participants “saw risks to both sides of the Committee’s dual mandate”, but “many” felt that “downside risks to employment had increased since earlier in the year”. At the time, members expected a further modest softening in the labour market, a view that is consistent with the above September result. With the next employment report not available until after the December meeting, the FOMC is likely to remain on hold into year-end; then, if the trend continues, slowly ease in 2026 as inflation risks ebb and downside risks for employment continue to edge up. We expect two 25bp rate cuts in the first half of 2026; the market currently has those two rate cuts priced plus an 80% chance of another two cuts in the second half.
Data out this week for the UK and Euro Area was inconsequential. The latest round of activity data for China released last Friday, however, highlighted a need for active policy easing in scale. In October, there was no improvement in consumer demand, year-to-date growth in retail sales instead edging down to a modest 4.3%. Property investment meanwhile continued to contract at a rapid rate, -14.7%ytd, as residential property sales declined 9.4%ytd and prices fell another 0.5% for new homes and 0.7% for existing.
Total fixed asset investment has lost the support of high-tech manufacturing investment, which is plateauing after incredible growth over the past five years, and so is currently down -1.7%ytd from -0.5%ytd in September. A statement of intent is needed from policy makers not only to support stronger domestic activity but also confidence amongst both households and business. The near-term path for sentiment will prove critical to medium-term capacity and wealth opportunities, and therefore to authorities’ stated ambitions for the long run.
. Wage dynamics vary by sector, private sector wages growth falling to its slowest pace in three years (3.2%yr) as public sector wages growth accelerated (4.3%yr), partly buoyed by base effects. Outcomes also varied by bargaining stream, with the contribution from individual arrangements trending lower as enterprise agreements added more.){kind=link}