ABS explains incorrect employment figures

The seasonally adjusted labour force series of employment and unemployment have been unstable in the past few months.

In its August figures, the ABS reported that it had investigated this instability but no systematic cause could be identified at the time. 

However, when the September 2014 labour force estimates were being processed, the instability in the seasonally adjusted estimates of persons employed and unemployed became more pronounced, the ABS said.

“The ABS concluded that the seasonal adjustment, which is based on past patterns of seasonal and other systematic variation, was not operating as expected for July, August and September 2014,” it said.

“Accordingly, it set the seasonal factors to one for the estimates for these months (other than for aggregate monthly hours worked) and announced a review to determine the appropriate treatment for the October 2014 and subsequent releases of Labour Force, Australia.”

Prior to releasing the August 2014 labour force data, the ABS investigated the estimates produced in both July and August.

While the movements between June and July for the seasonally adjusted unemployment rate and participation rate were unusual they were not unprecedented in the series.

According to the ABS, the movements between July and August for the seasonally adjusted employment series, especially part-time employment, were very large but were also not unprecedented.

“However, if the seasonal factors based on the previously observed seasonal pattern had been applied to September, there would have been a large fall in employment, more than offsetting the large rise in August,” it said.

“Short-term volatility of this magnitude is unlikely to reflect labour market reality, so the cumulative evidence from these three months showed that the previously observed seasonal patterns for these months were not evident in 2014.”

To demonstrate the problems with the survey as it stood in September, Westpac ran a number of scenarios on how the ABS could handle the seasonality issues and the impact this would have had on the seasonally adjusted estimates.

“To do so we have worked on the assumption that October will exhibit the normal seasonal behaviour it has done for a decade now,” Westpac senior economist Justin Smirk said.

“Arguably, even this assumption might prove to be unreliable given we are still yet to know the impact of the changes in the survey methodology,” Mr Smirk said.

“These scenarios produced a wide range of estimates for the October change in total employment from a low of -59,300 to a high of 15,500,” he said.

With the ABS revisions, Westpac will produce a forecast of employment, unemployment and the unemployment rate for the October Labour Force Survey.