Before you believe all the spin that economists and politicians put on the latest Labour Force figures, you would have to think that there’s something odd going on with November’s labour market, just as there was with the figures for October 2015.
The most glaring oddity for the November figures is the number of jobs created, 71,400 in total, of which 29,700 were part time.
If we take this figure as reported that means over the 22 working days of the month, 3245 new jobs were created, every day. Put another way, that’s over 400 new jobs every working hour of the month. That’s a tough one to swallow.
And before the government gets too excited, one needs to point out that while 71,400 jobs were ‘created’ the number of people unemployed decreased by only 2800. How come? Because, according to the ABS the participation rate increased.
That is, unemployed people who had either lost their job or who had been unemployed and had previously told the survey caller they were not looking for work, were now saying in the new survey that they were looking for work, so they were added to the new count as unemployed.
But these people were still unemployed whether they were counted or not, which casts a shadow over the classification of the participation rate. At some earlier stage, these people had a job and either left it, or were sacked.
Therefore, at some point those 68,600 people in the November survey classified as being part of an increased participation rate, lost their jobs.
That resembles a revolving door with almost as many going out as are coming in. This does not translate to an improving economy. Considering that these are seasonally adjusted figures, their volatility suggests there is something wrong with the formula.
The following is an explanation of the formula used by the ABS. This description is taken directly from Peter Martin’s article in the Sydney Morning Herald one month ago, when he reported on the October figures. The heading was,” ABS labour force figures can’t be believed – employment didn’t jump by 58,600 jobs in October”
I’m happy to let Peter’s explanation stand because reading the explanation from the ABS is a lot more complicated. If however you wish to forge you way through it, you will find it here.
“Every month the Bureau surveys around 26,000 households and asks who in them worked in the past two weeks and who did not. It surveys the same households month after month for eight months, then on the ninth month it abandons one eighth of its survey and replaces it with a new eighth, chosen at random. The new eighth stays in for eight months, and so on.
The idea is to get both continuity and change, so that it is not always surveying the same 26,000 households.
Every so often there’s something unusual about the one-eighth that is ejected from the survey (such as being highly unemployed) or something unusual about the one-eighth that is brought in (such as being highly employed). Or something unusual about both.
When that happens the employment total can jump (or dive) even if the employment experience of those who remained in the survey didn’t change, or didn’t change much.
That seems to be what happened in October. Yes, there was something of a “Turnbull Effect”, or perhaps it was a “Daniel Andrews Effect” given that the jump in employment was concentrated in Victoria. But it wasn’t as big as is claimed.
It is possible to work this out by examining what the Bureau calls the “gross flows”. These are the movements into and out of employment between the October and November surveys among only those households who were in both surveys. The gross flows leave out both the households that left the survey in October and the households that joined in November.
The gross flows show a genuine jump in employment in October, but one only half as big as the one published.
Around half of that figure of 58,600 newly-employed workers appears to have been a statistical artifact, caused by a difference in the type of households that left the survey and the type that joined.”
Remember, these are the seasonally adjusted figures we are referring to. If you would rather accept the trend figures instead of the seasonally adjusted figures then you will be even more confused. If anything, they seem to paint a more believable picture.
One has to think though, that there must be a better formula to accurately gauge the state of the labour market.
Suggestions are more than welcome.