Employment and consumption are both stronger than expected – but the recovery remains uneven, and states could be doing more to help.
The RBA’s monthly temperature check of the economy has found that things are better than expected, with consumer confidence gradually returning to pre-COVID levels and a rebound in employment on the cards.
“Members noted that household consumption had contracted significantly in the June quarter, with the decline in April having been particularly steep,” the RBA said in the minutes of its meeting on monetary policy.
“Since then, consumption had started to recover, but was still well below pre-pandemic levels. Restrictions on activity had constrained spending in Victoria, with retail spending there much weaker than in the rest of the country.”
Consumption is expected to increase further in the September quarter – but the increase will only “partly reverse” the contraction seen earlier in the year. Employment was also “stronger than generally expected”, but not enough to prevent the significant rise in unemployment seen for the July quarter, while measures of labour under-utilisation remained very high.
“More timely payroll data suggested the number of jobs in the weeks up to early August had declined a little, with a notable drop in jobs in Victoria,” the RBA said.
“The recent decline in Victoria had erased much of the recovery in jobs between April and June. Outside of Victoria, the recovery in jobs appeared to have slowed.”
The RBA also suggested that state governments could be doing more to support the recovery through increased direct spending on goods, services, and job creation.
“Governments at this level had considerable experience to draw on in service delivery, employment and implementing direct purchases of goods and services,” the RBA said. “They also accounted for a larger share of public demand than the Australian government. Members noted that debt levels relative to the size of the economy were low for the Australian and state governments.”
And while interest rates remain at historical lows, the RBA opened the door to potential further easing.
“The board affirmed its commitment to supporting jobs, incomes and businesses in Australia,” the RBA said.
“It agreed to maintain highly accommodative settings as long as required and to continue to consider how further monetary measures could support the recovery.”