On Thursday, the Australian Bureau of Statistics (ABS) will release Australia’s jobs report for March.
As usual, all of the attention will be on the seasonally adjusted figures, probably much to the disappointment of the ABS who have been trying for several years to push markets towards focusing on the the less-volatile trend data series.
Given the volatility that the seasonally adjusted figures bring, that looks like a battle the ABS is unlikely to win.
However, perhaps markets shouldn’t focus on the release at all given well-documented concerns about the veracity of the jobs report, particularly on a month-to-month basis and given recent strength in alternate labour market indicators.
As seen in the chart below, the monthly swings in not only employment but also the unemployment rate are still fairly volatile in the ABS report.
As the RBA has pointed out for some time now, “various forward-looking indicators still point to continued growth in employment over the period ahead”, an anomaly of sorts to the weakness that has been reported in the official ABS data.
The question many are asking is what is right? Alternate labour market indicators, or the ABS data?
Though that’s under constant debate, and creating a headache for policymakers trying to get a grip on the true health of labour market conditions, it’s clear that the ABS data is currently the odd one out.
Take the NAB’s Australian business survey’s employment component over the first quarter of this year as a prime example of this divergence in the data.
It averaged 5.4 in the first three months of the year, indicating that hiring levels were the strongest that they’ve been in over six years. Compare that to the ABS data which reported that employment grew by only 7,000 in the first two months of the year.
As this excellent chart from the Commonwealth Bank’s interest rate strategy team shows, compared to the wild swings in annual employment growth reported by the ABS, the employment measure in the NAB survey has been far less volatile, and suggests that hiring levels have been accelerating in recent years.
“That’s very different to the picture the ABS labour force report would have you believe,” says the CBA.
“It also shows that you shouldn’t just accept the ABS read, and not just on a month-to-month basis.
“We think it is highly unlikely jobs growth fell to near zero in 2013, before surging to 3.0% in late 2015 and now back to 0.9%.”
The CBA believes that the wild seasonally adjusted figures have been heavily distorted by the changes to the survey in second half of 2014, coinciding when the ABS suspended its seasonally adjusted figures for three months in order to rework seasonality patterns.
Adding further credence to the view that the ABS data may not be accurately capturing current labour market conditions, it’s not just the NAB survey that says things have been improving.
Forward-looking indicators such as ANZ job ads, skilled vacancy report from the government and various PMI reports have all been showing a modest improvement in labour market conditions recently, bucking the trend in the official data.
Given the recent divergence in various labour market releases, the CBA suggests some sort of correction may be overdue in the ABS data, showing a downward, rather than upward, trend in the unemployment rate.
“We won’t hold our breath, but that’s probably the best read on the situation,” it says.
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