Looking for reasons today’s unemployment figures are so wild.

Today the ABS released its usual monthly employment figures. It’s been a normal-seeming month, so what happened next was pretty surprising.

The economy set a record for the most jobs added in a month!36 years of employment data

Is there something wrong with the way the ABS treated the data? Maybe. Seasonal adjustment is something they do every month. It allows for months to be treated the same and it is usually helpful. You can compare, for example, the underlying job trends between December, when shops are hiring for Christmas, with January, when all those casuals get let go.

It seems like August is a month where the seasonal adjustment team is very busy. The survey result for August was +32,000 jobs before they seasonally adjusted the data. The adjustment took it to +121,000 jobs.

But if months start behaving differently to how they behaved in the past, seasonal adjustment could make things worse. Here’s 20 years of August numbers (prior to seasonal adjustment). Something is different this year.

20 years of augusts

Could something else be to blame?

The ABS got in big trouble last month, when unemployment seemed to shoot up in seasonally adjusted terms. Everyone blamed a new survey design and counselled us to ignore the monthly move. It seems they may have been right and what I wrote at the time, arguing for a focus on the more recent data, was unwise.

But July’s data surprise was not in the number of people with a job.  The survey design change was about “looking for work”. Having a job is far more clear cut and July’s figures showed very small and reasonable falls in unadjusted and seasonally adjusted terms. (-11,000 and -4,000 respectively)

So what’s most likely?

  • Is it that August has started behaving differently and seasonal adjustment needs adjustment?
  • That randomness explains the outlier?
  • Or that the economy has really, truly, but very quietly, turned a corner and added a lot more jobs than we expected?

We may need more data to answer this question… Stay tuned for next month!

UPDATE:

I broke down the jobs growth series into full time and part time

Prior to adjustment, the figures are :

  • part time +112,000,
  • full time -80,000

This means that our massive apparent boost in jobs is dependent on raw survey data that shows 80,000 full time jobs were lost. I trust the ABS but this is weird.

+112,000 is not even a record month for part-time jobs. March 2014 set the record with +168,000.

I ran a correlation that showed full time and part time jobs growth are weakly negatively correlated. Perhaps that means since part time job growth was high they expected a really big fall in full time jobs, that didn’t materialise.

How focusing on “trend” unemployment figures is like chanting “scoreboard” at the football.

Today’s unemployment figures were SHOCKING: the unemployment rate shot up to 6.4 per cent, a whopping increase from last month’s result of 6.0 per cent, in seasonally adjusted terms.

Except.

There are two main series that report the unemployment rate. Trend and Seasonally Adjusted. The former is more stable, the latter is more variable,.

There is a constant fight online between two gangs, the “wonks” and the “journos”. The former generally think the latter are too sensational with their taste for the more wildly variable series.

bloods_crips_
Wonkz v Press.

Here’s the latest update on the two series:

unemp july

Trend looks like a sensible person who never gets too carried away, while seasonally adjusted is a wild ball of emotions, one moment in the dumps, the next elated.

It’s obvious which one serious-minded people should prefer, right?

But what if I told you trend is faking it? See how it claims to be sloping up all year? Let’s go back in time and consider the countenance of our “friend” the trend back in April.

unemp apr

At the time, it also claimed to be feeling glum. Now it has changed its tune. Trend is like a talented politician, flip-flopping around to try to claim the middle ground and seem more reasonable than the rest.

unemp may

As recently as May, trend was headed downward. Then in June it made a small concession to the last two months of movement in the seasonally adjusted series:unemp juneBelow is how the trend is figured out. Essentially it uses a combination of old and new data to get a sense of how the series is moving over a longer time period.

“The smoothing of seasonally adjusted series to produce ‘trend’ series reduces the impact of the irregular component of the seasonally adjusted series. These trend estimates are derived by applying a 13-term Henderson-weighted moving average to all months except the last six. The last six monthly trend estimates are obtained by applying surrogates of the Henderson average to the seasonally adjusted series. Trend estimates are used to analyse the underlying behaviour of a series over time.

 While this smoothing technique enables estimates to be produced for the latest month, it does result in revisions in addition to those caused by the revision of seasonally adjusted estimates. Generally, revisions due to the use of surrogates of the Henderson average become smaller, and after three months have a negligible impact on the series.”

When wonks say “the trend is your friend” they are focusing on a more than just the latest month’s data.

It’s like at the footy. One side kicks a goal and cheers. The other side points to the score, and chants “Scoreboard!” But in doing so, you can miss an important turning point.

Seasonally adjusted data look at what’s happened in the last month alone, just like the goal that just got kicked is the best measure of the passage of play that preceded it. Because it uses less data, it can also include more statistical noise.

The scoreboard, like the trend series, shows more than that and exhibits less statistical noise.

But this is a game that never ends. If you want to know what’s happening, focusing on the most recent figures seems perfectly fair to me.