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MONTHLY LEADING INDICATOR OF EMPLOYMENT
The Monthly Leading Indicator of Employment (the Indicator) has fallen for the fourth consecutive month in October 2021. This latest result is attributed to falls in all five of the Indicator’s components—particularly the NAB Forward Orders Index.
It is still too early to confirm a turning point in the Indicator—and a likely fall in the growth rate of employment to below its long-term trend rate—as the Indicator has fallen for fewer than six consecutive months. The cyclical employment series (derived from a centred six-year trend rate) has been suspended until more certainty emerges in the underlying trend in labour market activity.
Levels of the Leading Indicator of Employment
Monthly Changes in Value of Leading Indicator*
|∆ Leading Indicator||0.222||0.003||-0.209||-0.350||-0.391||-0.421|
*monthly changes in standard deviations from the cyclical trend
Components of the Leading Indicator (Short-term Trend)**
|Series||Change over the Year||Change over the Month||Contribution to Change in Leading Indicator|
|NBSC Purchasing Managers’ Index for Manufacturing Output in China (October 2021 release)||-7.3%||-1.1%||-0.063|
|US Yield Difference
(10-year vs. 3 month interest rates, October 2021 release)
|0.7 pts||0.0 pts||-0.017|
|NAB Forward Orders Index (September 2021 release)||12.8 pts||-4.2 pts||-0.248|
|Westpac-Melbourne Institute Leading Index of Economic Activity (September 2021 release)||2.2%||0.0%||-0.024|
|Westpac-Melbourne Institute Consumer
Sentiment Index (September 2021 release)
|∆ Leading Indicator:||-0.421|
**Note: The cyclical components of each series, and not the trend percentage changes shown above, contribute to the movements in the Indicator. Data have been trended by the Department of Education, Skills and Employment using the Henderson 13-term centred-moving-average process. Each series in the Indicator has the same weight of 20 per cent. The units of measurement for the contributions to change in the Indicator in the rightmost column are monthly changes in the standard deviation from the long-term trend. NBSC stands for the National Bureau of Statistics of China.
The Indicator is the average of the normalised and standardised cyclical elements of the five series in the table above, which have been shown to lead cyclical employment consistently over a long period. The cyclical components and the composite Indicator for previous months are subject to revision when new statistics are incorporated.
The Indicator is designed to give advance warning of turning points in ‘cyclical employment’ (i.e. the deviation of the centred one-year trend in employment from the centred six-year trend). The average lead time of the Indicator over the series (i.e. the time between a peak or trough in the Indicator and the corresponding peak or trough in cyclical employment) is over a year. A ‘turning point’ in the Indicator is said to be confirmed when there are six consecutive monthly movements in the same direction after the turning point. A fall (or rise) in the Indicator does not necessarily mean that the level of employment will immediately fall (or rise). Rather, it implies that after a lag, the growth rate of employment may fall below (or rise above) its centred six-year trend rate.
The date of the issue of the Indicator, and the labels for the x-axis of the chart, relate to the month the Indicator is released. The data used to derive the cyclical employment, however, are two months behind the release month for the Indicator. The data for the NBSC Purchasing Managers’ Index and US Yield Difference are one month behind their release dates, while data for the other three component series are two months behind their release dates.
The Indicator is available on the Department of Education, Skills and Employment website at approximately 2pm AEDT on the day of its release. The next issue is scheduled for release on Wednesday 10 November 2021.
Mr David Tian / Mr Lambert van Sittert
Labour Economics Section, Department of Education, Skills and Employment