Monthly Leading Indicator of Employment - April 2019
The Department of Jobs and Small Business’ Monthly Leading Indicator of Employment (the Indicator) has fallen for the twelfth consecutive month in April 2019, following a rise of eight consecutive months. The Indicator’s decline this month is due to falls in the US Yield Difference, the Leading Index of Economic Activity, the NAB Forward Orders Index and the Consumer Sentiment Index—suggesting that investors are concerned about a potential slowdown in the US economy, and that business and consumer confidence is low domestically. The modest rise in the Purchasing Managers’ Index for Manufacturing Output in China was not sufficient to offset the downward contributions from other components.
There was a strongly-confirmed peak in the Indicator in April 2018, indicating that the annual employment growth rate could fall below the long-term trend rate of 2.2 per cent per annum in the near term. Cyclical employment also fell this month, after rising for eight consecutive months, although it is too early to confirm that cyclical employment has recently peaked.
Levels of the Leading Indicator of Employment and Cyclical Employment
Monthly Changes in Value of Leading Indicator*
|∆ Leading Indicator||-0.130||-0.173||-0.189||-0.171||-0.146||-0.120|
*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 (April 2019 release)||-3.7%||0.1%||0.008|
|US Yield Difference (10-year vs. 3 month interest rates, April 2019 release)||-1.0 pts||-0.1 pts||-0.038|
|NAB Forward Orders Index (March 2019 release)||-7.1 pts||-0.6 pts||-0.032|
|Westpac-Melbourne Institute Leading Index of Economic Activity (March 2019 release)||-0.1%||-0.1%||-0.034|
|Westpac-Melbourne Institute Consumer Sentiment Index (March 2019 release)||-1.8%||-0.4%||-0.023|
|∆ Leading Indicator:||-0.120|
**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 Jobs and Small Business 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 slightly 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 of about 2.2 per cent a year.
Strongly confirmed turning points (peaks or troughs) are identified (or signalled) when there have been at least six consecutive moves in the same direction before the turning-point signal (but they don’t have to be immediately before), followed by at least six consecutive moves in the opposite direction immediately after the turning-point signal. The strongly confirmed peak (or trough) is the maximum (or minimum) value of the Indicator (or Cyclical Employment) in the period between the last strongly confirmed trough (or peak) and the month that the turning-point signal has been identified. Weakly confirmed turning points are not strongly confirmed turning points and have at least six consecutive moves in the same direction immediately before the turning point, followed by at least three consecutive moves in the opposite direction immediately after the turning point, or at least three consecutive moves in the same direction immediately before the turning point, followed by at least six consecutive moves in the opposite direction immediately after the turning point.
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 chart line, 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 Internet at approximately 2pm on the day of its release. The next issue is scheduled for release on Wednesday 15 May 2019.