June 2021 wrap-up of key economic updates

At its June 15-16 meeting the US Federal Reserve Open Market Committee (FOMC) left its target range for the federal funds rate unchanged at 0-0.25 per cent. But in its ‘dot plot’ forecasts, 11 of 18 policymakers signalled two rate increases in 2023. And several officials expect to increase the federal funds rate in 2022. Some investors are concerned that central banks could begin ‘tapering’ (or scaling-back) their massive pandemic emergency stimulus in response to building inflationary pressures and a strengthening in global economic activity as COVID-19 vaccination rates lift. With the ‘taper’ debate now underway in both the US and Australia, investors should expect market volatility to increase. 

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Employment soared by 115,200 in May after falling by 30,700 in April. The unemployment rate fell from 5.5 per cent to a 17-month low of 5.1 per cent. Unemployment continues to fall, boosting job security. So the latest data is positive for companies in the consumer staples and consumer discretionary sectors. A raft of companies is affected by the employment data, but especially those dependent on consumer spending. 

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The CoreLogic national home value index rose by 2.2 per cent in May to be up 10.6 per cent on the year—the strongest annual growth rate in almost 11 years. Home prices hit record highs in 66 of the 88 regions across Australia in May. And prices rose in 81 of the 88 regions in the month. In regional areas, home prices rose by 2 per cent in May to be up 15.2 per cent on the year—the strongest annual growth rate in almost 17 years.

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The Australian economy (as measured by gross domestic product or GDP) grew by 1.8 per cent in the March quarter after rising 3.2 per cent in the December quarter and lifting 3.5 per cent in the September quarter. The economy now exceeds the pre-pandemic highs, up 1.1 per cent on the year. It has been the fastest recovery from recession in 45 years. The economy is responding as hoped to unprecedented fiscal and monetary stimulus. The stimulus continues and further solid economic growth is expected with the jobless rate expected to fall to 4.5 per cent by year end.

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