While the overall US unemployment rate sits at 6. 2 per cent, it’s not the size of the total pool of unemployed that determines whether wage pressure builds, but the size of the employable unemployed. (The loss of skills and employability among the long-term unemployed is the main reason for hard-hearted economic rationalists to appreciate Australia’s big GFC stimulus package - the cost of the deficit has to be considered against the cost of a blowout in unemployment.
My suspicion is that we’re seeing a bit of the same in Wall Street ‘s knee jerk reaction last week to the idea that US interest rates won’t be able to stay extremely low forever, that at some stage the price of money will have to start getting back to normal.
Enough time will have passed for the traders’ noise to have subsided and for investors to understand that higher rates would reflect a stronger economy with lower unemployment and better growth - what everyone needs.
One of the speakers was Fidelity’s Asian fixed interest investment director, Gregor Carle, who specified that it’s the trend in the short-term unemployment rate in the US that Fidelity’s fixed interest team watches for early signs of inflation coming back to life.
Yes, the seasonally adjusted guess for June was a nice 0. 6 per cent improvement after May’s dive, but drawing a line through it with the trend series, there’s not much happening - retail sales growth of just 0. 1 per cent for each of the past three months.
Read more here: SMH