The most recent US Federal Open Market Committee
statement, released on 29 June, oh-so-subtly hinted at a potential pause in
monetary policy tightening, saying “The extent and timing of any additional
firming that may be needed to address these risks will depend on the evolution
of the outlook for both inflation and economic growth, as implied by incoming
information.”

The latest round of economic data will not be received
with champagne and caviar. Employers added only 121,000 new jobs during June,
well below the 175,000 forecast by economists. For the second quarter
employers added an average of 108,000 new jobs a month, down from 176,000 a
month in the first quarter. This slowdown in jobs growth is squarely in line
with the Fed’s tightening policy. However, the latest wage data shows that the
year ending 30 June had the largest year-on-year jump in average hourly earnings
in five years.

Slowing job creation and wildly rising wage costs mean
the labour market is extremely tight, raising concern for wage inflation in a
slowing economy; a recipe for stagflation.

Regarding the new did they/didn’t they debate, Michelle
Grattan
has it spot on this morning when she says “If John Howard and Peter Costello
aren’t careful, their jostling over the leadership will leave whoever takes the
party into election year 2007 in charge of a much-weakened Government”.

Could it be that the PM’s legendary discipline and
finger-on-the-pulse abilities are on the wane? Cossie’s strategy is to say
nothing, keeping the pressure on by refusing to be magnanimous, but also trying
to look above it all by not buying into all the speculation.

Meanwhile, Bomber must love the lack of attention and
the spotlight being on someone else. Although, with the IR laws so badly on the
nose with the punters, he’ll be vulnerable to attack from anyone wishing to
destabilise him on the basis that he did nothing on IR and it was the unions who
made all the headway – enter Bill Shorten after the next
election.

Henry counsels that the time is nigh for the PM and
Cossie to stop throwing each other’s toys out of the sandpit and work things out
quickly and cleanly. The next election will be a much more close-run thing than
many people think.

More reading at Henry Thornton.