On Tuesday Philip Lowe, the governor of the Reserve Bank, made it as clear as a central banker can get that interest rate cuts are coming. He also was as clear as he could be that the economy needs a lot of help.

Don’t you just hate how reality comes along to rain on your parade? All that talk of a strong economy and glorious budget surplus – a surplus so sure to occur that we can talk in the past tense about how it has already happened a year from now! It all seemed so good.

But alas it was all bulldust.

The economy is not strong, and on Tuesday Lowe made that plain in a speech to the Economic Society of Australia. And he made it so plain that there is now around a 93% chance of a rate cut in two week’s time, and the market has fully priced in a further cut to 1.0% by November.

And just in case you think that is not dramatic enough – the market is also saying it is pretty much a 50:50 bet on whether by the end of next year the cash rate will be 1% or 0.75%:

Lowe was abundantly clear that the issue was households and their lack of income growth. This is something I (and others) have been banging on about for a long time, but it was nice to hear the governor note that “the main reason for the shift in momentum in the Australian economy is a slowdown in household consumption growth”.

And the reason for that slowdown was “the long period of weak growth in household income”.

He pointed out that “over the past three years, household disposable income has increased at an average rate of just 2¾ per cent. This compares with an average of 6 per cent over the preceding decade.”

The big problem he noted was that “as this period of weak income growth has persisted, it has become harder for households to dismiss it as just a temporary development”.

And this is where the LNP government has utterly failed. All their policy and talk of strong economy has led us to the point where we are having household income growth at levels usually associated with a recession.

And it has led the RBA finally realising (rather too late in the eyes of many) that if they want things to improve, holding interest rates at record lows is not enough.

Lowe held out hope that the proposed tax cuts might give incomes and the economy a boost, and he also called for more infrastructure spending. You can understand why this later point is so important given the latest construction figures showed a big drop over the past nine months – especially in the public sector:

Lowe also noted that “job advertisements have declined; and hiring intentions have come off their earlier highs”. This is also borne out by the latest internet job vacancy figures released yesterday by the Department of Jobs and Skills:

This year has seen a big fall in the number of jobs being advertised across all skill levels – and most especially the bottom three levels:

It means that prospects for stronger employment and wages growth is dwindling – and with it hopes for consumption to improve.

It means that the Reserve Bank very much believes, as it first suggested in February, that unemployment can fall below 5% without causing inflation growth to rise.

Rather absurdly some media commentators – such as Karen Maley in the Financial Review – have suggested this is good news for the government.

It’s a very silly position to hold, and you really have to wonder at the lengths some media organisations will go to spin news as being good for the LNP. The reason the current level of unemployment is not causing inflation growth to rise is not because we’ve suddenly achieved this nirvana point of a strong labour market which does not affect wages or prices, but because there is so much underemployment:

The gap between unemployment and underemployment remains at record levels and it highlights that the issue with inflation growth is not unemployment but “underutilisation” (the combination of unemployment and underemployment).

Since the end of the 1990s recession inflation growth has remained relatively steady until the underutilisation rate dropped below 11% (as occurred in 2007 and 2008). And at the current rate of 13.3% we are a long way from that:

The difference between an underutilisation rate of 13.3% and 11.0% is around 330,000 fewer people either unemployed or underemployment – hardly indicative of a strong economy.

The Reserve Bank does not cut rates just because it thinks things are going well and it wants them to be better; it cuts rates because it realises there is little demand in the economy and little prospect of things improving unless they take action.

That the market expects they will still have to take further action after next month merely highlights just how poor things are and how little hope anyone has that what the government is planning to do will do much.

• Greg Jericho is a Guardian Australia columnist