Unemployment data released this morning provides more evidence that the economy is practically glowing in the dark. Employment increased by 49,600 to 10,416,600, while unemployment decreased by 5600 to 482,700. The results in the unemployment rates falling another 0.1% to 4.4%, even with the participation rate increasing by 0.2% to 64.9%.
Despite widespread fear that the US economy may be slowing faster than expected, the US Fed unanimously decided to leave interest rates at 5.25% due to ongoing concern about uncomfortably high inflation.
As Henry highlighted at the time, the last US Fed statement hinted that a slight policy change was in the works — what was considered to be a tightening bias was becoming more neutral, many thought. However, the latest statement shows that the Fed wishes to appear to remain vigilant on inflation:
Core inflation remains somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilisation has the potential to sustain those pressures … the committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected.
In local news, the ‘clever’ Budget remains the big economic story. The front page of today’s Fin exclaims “Billions left in election kitty”. Also, on Budget night, Kerry O’Brien asked Peter Costello why the Coalition Government had this year injected massive funding into education after he had massively slashed university funding in his first budget 11 years ago.
His answer: “Well, of course, in 1996, we had a budget deficit of $10 billion. We owed $96 billion, we were paying interest payments of $8.5 billion and we didn’t have money. And now we’ve got no debt, we’re saving $8.5 billion in interest, and our budget will be in surplus for the 10th time.”
Exactly how much money are we swimming in?
Last month, the ABS released data on total taxation revenue between 2000-01 and 2005-06, and the figures were stunning. As Cossie has said, state governments are indeed awash with money, with taxation receipts jumping by just over 35% from 2000-01 and 2005-6. However, if the states are awash, the Federal Government is practically drowning — federal taxation receipts jumped by almost 40% in that same time.
Of course, the major reason for these funds can be found in this graph — the RBA commodity price index. With the Chindia boom likely to last for many years to come, such growth in tax receipts will continue unabated — even with tax cuts.
Read more at Henry Thornton.