October 19, 2025 • 11 mins
This week we hear more from the RBA as well as key data out of China. But what should we be making of last week's surprise jump in unemployment - and what does it mean for interest rates?
Michael Thompson is joined by AMP Deputy Chief Economist Diana Mousina.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Welcome to Fear and Greed Q and A, where we
ask and answer questions about business, investing, economics, politics and more.
I'm Michael Thompson and every Monday we take a look
at the week ahead for the economy. Diana Messina is
the deputy Chief Economist at AMP Deana. Welcome back to
Fear and Greed Q and A Thanks Michael. It's great
to be here this week. I suppose it's a little
bit quiet, really, isn't it on the domestic front, A
(00:26):
couple of things happening internationally. We almost need a little
bit of a breather after last week because we had
a heck of a week last week, and it's kind
of a story of a whole lot of data coming
out and a lot of commentary around from the RBA,
And we saw the minutes from the last board meeting
saying there's no rush to cut rates, and then we
(00:47):
had commentary from the RBA chief economists and everything kind
of pointing in one direction. Then on Thursday, the unemployment
rate came in at four point five percent, well above expectations,
and kind of flipped everything on its head. Let's start
with that the unemployment figure, what do we take from that.
Speaker 2 (01:05):
Well, I sort of think, well, finally, finally the unemployment
rates reached the level that we've been forecasting for a
while now. Not that I want to talk up a
higher unemployment rate, but our view for a while at
AMP anyways has been that the unemployment rate has to
tick up a little bit more based on the job figures, sorry,
(01:26):
based on the forward looking job indicators, things like job advertisements,
hiring intentions, the stock of jobs available. Those have basically
tracked sideways to down in the last few months, and
we're also seeing a softening in some of the non
market services jobs, mainly those that are related to the
public service, while the private sector has been quite weak,
(01:46):
which we've known from the GDP figure. So I think
it's sort of like we've been expecting it for so
long that I wasn't. I was surprised that we had
that big jump over one month, and the labor force
figures are volatile, so I think next month the unemployment
rate may tick down again to four point four percent,
but the overall trend is very clearly up, and the
(02:06):
unemployment rate now is going to average above the RBA's forecast.
They were basically expecting a peak of four point three percent,
and their view has been that the unemployment rate, the
natural or the neutral unemployment rate, I should say, which
is basically, you know where you're where you're where you've
reached full employment is probably somewhrate around four and a
half percent, but our view is that it's probably a
(02:28):
little bit below that. So what's happening now is that
we're running the economy below its potential and now below
its potential in the labor flore So it should lead
to a slowing in wages growth, which will be good
news for the RBA's two to three percent inflation target
and services inflation more broadly. But I guess it then
(02:49):
put also puts into question which part of the dual
mandate is sort of more important right now? Does the
RBA want to focus on employment or is it going
to be worried about tick up in inflation that we've
had in the past two months?
Speaker 1 (03:03):
All right, then how does that feed into their interest
rate decision then, Because I mean, we did start last
week with commentary that the labor market was still a
bit tight, and then all of a sudden we get
this figure that was slightly higher than expected. And as
you say, kind of in line with where they thought
we'd get to eventually, but just probably not as quickly
(03:23):
as we did. Is this going to be enough now
to change the thinking on interest rates for the next meeting?
Or is it really all going to hinge on that
that September quarter of inflation data.
Speaker 2 (03:35):
It will matter a lot for the next meeting, in
particular for the November rate decision, which will happen after
the CPI the full quarterly CPI figures, the RBA may
still be thinking, well, it's just one month's worth of figures,
you know. It could the participation rate actually is still
around a record high, which is a good sign that
(03:56):
people are still engaged in the labor force. But at
the same time, I think they will be concerned that
labor demand is probably softening a little bit quicker than
they expected. So I think it probably gives us a
little bit more breathing room for the next quarterly CPI
print if it prints a little bit above expectations, and
actually it is going to print above the RBA's forecast,
(04:17):
that's sort of a certainty unless something really weird happens
to the figures, But it depends how much above.
Speaker 1 (04:22):
The RBA's forecast it prints.
Speaker 2 (04:24):
I think the inflation figures probably give the RBA a
bit more wiggle room for it to print a bit higher,
because a lot of the upside to inflation has been
in things like market services and nondually construction costs. Now
not a lot of those that I guess directly linked
to RBA rate changes. A lot of them are quite
slow moving, and we know that we know that numerous
(04:47):
countries have had problems with getting services inflation down after COVID,
so maybe they'll they'll try to look through I guess
some of those upside inflation risks, is what I'm trying
to say. I think that the labor force figures will
play a bit role in the November decision because I
think that part of their strategy has been to, what
they say, preserve the gains that have been made in
the labor market in the past few years. And if
(05:10):
we see the labor market unraveling quicker, then I think
that they would probably make the decision to cut rates
even if they were feeling a little bit uncomfortable about inflation.
And we're not talking about inflation running well above the targetbed.
We're just talking about the September quarter figures being a
little bit higher than where they've been hoping them to be.
Speaker 1 (05:30):
So you reckon if it's kind of almost a flip
of the coin, they will go to the side of
cut rates rather than hold.
Speaker 2 (05:37):
I'd say so. I mean, it really depends on which
parts of the inflation data for the September quarter are
showing upside. But we've seen this with the Fed. They've
actually taken the thought process that the labor market's a
little bit more important right now. Their core inflation and
their headline inflation figures are not too dissimilar to Australia's.
Speaker 1 (05:57):
Actually, yeah, okay. One of the things that came out
last week, there was a bunch of commentary last week,
but one little tidbit that I thought was really interesting
was Michelle Bullock speaking in the US, where she was
talking about basically offering some advice to the federal government,
instructing them really to do a better job of reducing
(06:18):
the deficit when the economy is performing reasonably well, because
if you don't do it, now, what are you going
to do when there's a downturn. It's great to see
that kind of commentary being made. It's common sense though.
Speaker 2 (06:28):
Right, absolutely, and it probably goes to the point that, well,
if we look at the budget projections for the our years,
they're still looking like deficits are going to keep getting larger.
And in the past few years, the government's just benefited
from a strong economy and very high commodity prices, which
has pushed us into a small budget surplus. It's not
been the force of any policy. It's literally been good luck.
(06:52):
I mean, I guess some could say, well, it's good
policy that the economy has been strong, but I'd say
it's more good luck and the revenue that we've gotten
from overseas basically, so I think it makes absolute sense.
Speaker 1 (07:03):
Okay, let's turn to this week. We've got a few
RBA speeches. It does feel like we are hearing a
lot at the moment. How much of what we're going
to hear this week will be reflecting on the jobs
data from last week. Can we take much out of
what we're going to be hearing this week or is
it just all all dependent on future data releases.
Speaker 2 (07:23):
Well, I hope that we get some sort of commentary
about the job figures, but you know, it is always
hard to know what the Central Bank officials are going
to say, it's interesting that market pricing for the November
meeting is now back to where it was before the
latest inflation figure. So now markets are pricing in again
a rate cut in November, whereas after inflation, because a
(07:45):
lot of economists actually took out expectations for that November
rate cut and even some were saying that the RBA
is not going to cut rates again. So maybe the
RBA will want to temper down some of those rate
cut expectations, trying to make a bit more balanced, more
like that, just indicating that it's going to be more
of a live meeting. And I think that the IRBA
will also try not to play up the unemployment rate
(08:08):
increase too much because they know that the labor force
figures can be quite volatile.
Speaker 1 (08:15):
Out of the US this week, we should be getting
data but sho, but we're not because of the US
government shut down, which means that that a whole stack
of different data releases are all delayed. Just how big
an impact does that have first on the US not
being able to make decisions based on that information, but
then that obviously flows through to other markets and other
(08:37):
places around the world like Australia.
Speaker 2 (08:39):
I guess everyone's just hoping that the shutdown finishes quickly
and that will get the data releases. But it's been
already two weeks, so it could be a bit of
a problem for the FED because they've been waiting for
that employment data and it just increases the risk that
at the next meeting they won't be able to do anything.
But I think that by the next meeting we will
have more of the data releases, and clearly the share
(09:02):
market doesn't care because it's just trading off commentary around
trade issues between the US and China and it's just
happy to keep rolling along. We've also got earning season
in the US and that's a big driver of US
S and P returns, so I think that will probably
be the key thing that investors looking at rather than
(09:22):
the economic figures this week.
Speaker 1 (09:24):
Okay, in terms of Australia and the impact on Australia,
China has a massive impact. Whatever happens there as an
extraordinarily large impact on Australia, particularly because of our exports there.
In terms of iron ore. We are going to be
hearing a lot from China this week. In terms of GDP,
how the economy is traveling where they think it's going.
What are you expecting to see?
Speaker 2 (09:46):
The China dart is quite mixed and has been for
a number of months. I mean, the GDP figures are
not necessarily bad, no, I think that they're basically running
in line with targets or the official targets. But it's
the split of GDP that invests are going to be
looking at. So part of the GDP story is quite strong.
Export growth is still really good in China. We've seen
(10:06):
that in the monthly trade figures that export growth is
still holding up really well. And fix that set investments
also doing okay, but the property sector is still under
a lot of pressure. Investments still down by it's something
like twenty percent over the past year. So it's a
mixed story within the Chinese economy itself. I mean, Chinese
shares have actually been rallying really strongly in the past
(10:29):
few weeks, and they've broken out and actually been outperforming
peers like the US and Europe. So if we get
some more positive data this week and that could provide
another leg up for the share market, I think that
the Chinese economy is still holding up okay. It's mixed,
but you know, it's much stronger than where it was
straight after COVID and there's a lot of investment that's
(10:50):
going into the green energy sector which is helping to
prop up growth.
Speaker 1 (10:53):
All Right, plenty going on, Diana, thank you for talking
to fear and greed. Thank you. That was AMP Deputy
Chief Economist Fianna Messina. I'm Michael Thompson and this is
beer and grebe Q and a
Welcome to Fear and Greed Q and A, where we
ask and answer questions about business, investing, economics, politics and more.
I'm Michael Thompson and every Monday we take a look
at the week ahead for the economy. Diana Messina is
the deputy Chief Economist at AMP Deana. Welcome back to
Fear and Greed Q and A Thanks Michael. It's great
to be here this week. I suppose it's a little
bit quiet, really, isn't it on the domestic front, A
(00:26):
couple of things happening internationally. We almost need a little
bit of a breather after last week because we had
a heck of a week last week, and it's kind
of a story of a whole lot of data coming
out and a lot of commentary around from the RBA,
And we saw the minutes from the last board meeting
saying there's no rush to cut rates, and then we
(00:47):
had commentary from the RBA chief economists and everything kind
of pointing in one direction. Then on Thursday, the unemployment
rate came in at four point five percent, well above expectations,
and kind of flipped everything on its head. Let's start
with that the unemployment figure, what do we take from that.
Speaker 2 (01:05):
Well, I sort of think, well, finally, finally the unemployment
rates reached the level that we've been forecasting for a
while now. Not that I want to talk up a
higher unemployment rate, but our view for a while at
AMP anyways has been that the unemployment rate has to
tick up a little bit more based on the job figures, sorry,
(01:26):
based on the forward looking job indicators, things like job advertisements,
hiring intentions, the stock of jobs available. Those have basically
tracked sideways to down in the last few months, and
we're also seeing a softening in some of the non
market services jobs, mainly those that are related to the
public service, while the private sector has been quite weak,
(01:46):
which we've known from the GDP figure. So I think
it's sort of like we've been expecting it for so
long that I wasn't. I was surprised that we had
that big jump over one month, and the labor force
figures are volatile, so I think next month the unemployment
rate may tick down again to four point four percent,
but the overall trend is very clearly up, and the
(02:06):
unemployment rate now is going to average above the RBA's forecast.
They were basically expecting a peak of four point three percent,
and their view has been that the unemployment rate, the
natural or the neutral unemployment rate, I should say, which
is basically, you know where you're where you're where you've
reached full employment is probably somewhrate around four and a
half percent, but our view is that it's probably a
(02:28):
little bit below that. So what's happening now is that
we're running the economy below its potential and now below
its potential in the labor flore So it should lead
to a slowing in wages growth, which will be good
news for the RBA's two to three percent inflation target
and services inflation more broadly. But I guess it then
(02:49):
put also puts into question which part of the dual
mandate is sort of more important right now? Does the
RBA want to focus on employment or is it going
to be worried about tick up in inflation that we've
had in the past two months?
Speaker 1 (03:03):
All right, then how does that feed into their interest
rate decision then, Because I mean, we did start last
week with commentary that the labor market was still a
bit tight, and then all of a sudden we get
this figure that was slightly higher than expected. And as
you say, kind of in line with where they thought
we'd get to eventually, but just probably not as quickly
(03:23):
as we did. Is this going to be enough now
to change the thinking on interest rates for the next meeting?
Or is it really all going to hinge on that
that September quarter of inflation data.
Speaker 2 (03:35):
It will matter a lot for the next meeting, in
particular for the November rate decision, which will happen after
the CPI the full quarterly CPI figures, the RBA may
still be thinking, well, it's just one month's worth of figures,
you know. It could the participation rate actually is still
around a record high, which is a good sign that
(03:56):
people are still engaged in the labor force. But at
the same time, I think they will be concerned that
labor demand is probably softening a little bit quicker than
they expected. So I think it probably gives us a
little bit more breathing room for the next quarterly CPI
print if it prints a little bit above expectations, and
actually it is going to print above the RBA's forecast,
(04:17):
that's sort of a certainty unless something really weird happens
to the figures, But it depends how much above.
Speaker 1 (04:22):
The RBA's forecast it prints.
Speaker 2 (04:24):
I think the inflation figures probably give the RBA a
bit more wiggle room for it to print a bit higher,
because a lot of the upside to inflation has been
in things like market services and nondually construction costs. Now
not a lot of those that I guess directly linked
to RBA rate changes. A lot of them are quite
slow moving, and we know that we know that numerous
(04:47):
countries have had problems with getting services inflation down after COVID,
so maybe they'll they'll try to look through I guess
some of those upside inflation risks, is what I'm trying
to say. I think that the labor force figures will
play a bit role in the November decision because I
think that part of their strategy has been to, what
they say, preserve the gains that have been made in
the labor market in the past few years. And if
(05:10):
we see the labor market unraveling quicker, then I think
that they would probably make the decision to cut rates
even if they were feeling a little bit uncomfortable about inflation.
And we're not talking about inflation running well above the targetbed.
We're just talking about the September quarter figures being a
little bit higher than where they've been hoping them to be.
Speaker 1 (05:30):
So you reckon if it's kind of almost a flip
of the coin, they will go to the side of
cut rates rather than hold.
Speaker 2 (05:37):
I'd say so. I mean, it really depends on which
parts of the inflation data for the September quarter are
showing upside. But we've seen this with the Fed. They've
actually taken the thought process that the labor market's a
little bit more important right now. Their core inflation and
their headline inflation figures are not too dissimilar to Australia's.
Speaker 1 (05:57):
Actually, yeah, okay. One of the things that came out
last week, there was a bunch of commentary last week,
but one little tidbit that I thought was really interesting
was Michelle Bullock speaking in the US, where she was
talking about basically offering some advice to the federal government,
instructing them really to do a better job of reducing
(06:18):
the deficit when the economy is performing reasonably well, because
if you don't do it, now, what are you going
to do when there's a downturn. It's great to see
that kind of commentary being made. It's common sense though.
Speaker 2 (06:28):
Right, absolutely, and it probably goes to the point that, well,
if we look at the budget projections for the our years,
they're still looking like deficits are going to keep getting larger.
And in the past few years, the government's just benefited
from a strong economy and very high commodity prices, which
has pushed us into a small budget surplus. It's not
been the force of any policy. It's literally been good luck.
(06:52):
I mean, I guess some could say, well, it's good
policy that the economy has been strong, but I'd say
it's more good luck and the revenue that we've gotten
from overseas basically, so I think it makes absolute sense.
Speaker 1 (07:03):
Okay, let's turn to this week. We've got a few
RBA speeches. It does feel like we are hearing a
lot at the moment. How much of what we're going
to hear this week will be reflecting on the jobs
data from last week. Can we take much out of
what we're going to be hearing this week or is
it just all all dependent on future data releases.
Speaker 2 (07:23):
Well, I hope that we get some sort of commentary
about the job figures, but you know, it is always
hard to know what the Central Bank officials are going
to say, it's interesting that market pricing for the November
meeting is now back to where it was before the
latest inflation figure. So now markets are pricing in again
a rate cut in November, whereas after inflation, because a
(07:45):
lot of economists actually took out expectations for that November
rate cut and even some were saying that the RBA
is not going to cut rates again. So maybe the
RBA will want to temper down some of those rate
cut expectations, trying to make a bit more balanced, more
like that, just indicating that it's going to be more
of a live meeting. And I think that the IRBA
will also try not to play up the unemployment rate
(08:08):
increase too much because they know that the labor force
figures can be quite volatile.
Speaker 1 (08:15):
Out of the US this week, we should be getting
data but sho, but we're not because of the US
government shut down, which means that that a whole stack
of different data releases are all delayed. Just how big
an impact does that have first on the US not
being able to make decisions based on that information, but
then that obviously flows through to other markets and other
(08:37):
places around the world like Australia.
Speaker 2 (08:39):
I guess everyone's just hoping that the shutdown finishes quickly
and that will get the data releases. But it's been
already two weeks, so it could be a bit of
a problem for the FED because they've been waiting for
that employment data and it just increases the risk that
at the next meeting they won't be able to do anything.
But I think that by the next meeting we will
have more of the data releases, and clearly the share
(09:02):
market doesn't care because it's just trading off commentary around
trade issues between the US and China and it's just
happy to keep rolling along. We've also got earning season
in the US and that's a big driver of US
S and P returns, so I think that will probably
be the key thing that investors looking at rather than
(09:22):
the economic figures this week.
Speaker 1 (09:24):
Okay, in terms of Australia and the impact on Australia,
China has a massive impact. Whatever happens there as an
extraordinarily large impact on Australia, particularly because of our exports there.
In terms of iron ore. We are going to be
hearing a lot from China this week. In terms of GDP,
how the economy is traveling where they think it's going.
What are you expecting to see?
Speaker 2 (09:46):
The China dart is quite mixed and has been for
a number of months. I mean, the GDP figures are
not necessarily bad, no, I think that they're basically running
in line with targets or the official targets. But it's
the split of GDP that invests are going to be
looking at. So part of the GDP story is quite strong.
Export growth is still really good in China. We've seen
(10:06):
that in the monthly trade figures that export growth is
still holding up really well. And fix that set investments
also doing okay, but the property sector is still under
a lot of pressure. Investments still down by it's something
like twenty percent over the past year. So it's a
mixed story within the Chinese economy itself. I mean, Chinese
shares have actually been rallying really strongly in the past
(10:29):
few weeks, and they've broken out and actually been outperforming
peers like the US and Europe. So if we get
some more positive data this week and that could provide
another leg up for the share market, I think that
the Chinese economy is still holding up okay. It's mixed,
but you know, it's much stronger than where it was
straight after COVID and there's a lot of investment that's
(10:50):
going into the green energy sector which is helping to
prop up growth.
Speaker 1 (10:53):
All Right, plenty going on, Diana, thank you for talking
to fear and greed. Thank you. That was AMP Deputy
Chief Economist Fianna Messina. I'm Michael Thompson and this is
beer and grebe Q and a
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