Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Saturday, 14 March 2015

Jobs growth stronger than thought?

February Labour Force

On Thursday I took a look at the jobs report for February 2015 here.

The figures showed that in seasonally adjusted terms total employment increased by +150,900 in the year to February 2015.

This averages out to ~12,500 new jobs on a net basis per month for 2015, which is evidently some way behind the rate of jobs growth which might keep unemployment from rising of ~20,000 per month.

Seasonal adjustments

It has been fairly well documented, however, that the Statistics Bureau has had a number of problems with its seasonal adjustments on this survey in particular.

For example Chief Economist of BT Financial, Dr. Chris Caton, made the following observation:

What Chris and others have pointed out is that the seasonal adjustment factors in use this year are wildly different from those used last year.

Employment growth in "Original" terms

I have re-run the total employment figures below from January 2010 to date below in original or unadjusted terms.

Chris makes an interesting point.

In original terms total employment increased by more than +283,000 or ~23,500 per month in the past year, and is up by +193,000 since September alone.

The reason appears to be that the ABS has included a supplementary survey during the past 12 months year for which its seasonal adjustments have been, um, adjusted.

I think on balance the only thing I can observe with any certainty about the employment numbers is that they are uncertain.

I gotta feeling...

What about gut feelings? Does the economy "feel" like its adding jobs at a near unprecedented pace?

The wages index does not suggest so, sitting at a survey low of only 2.5 percent, but this data is now historical by a quantum of more than 10 weeks, and anyway, wages growth historically has lagged jobs growth, or at least it has in other developed economies.

At the anecdotal level - which basically means me gossiping in Aquila and The Coffee Club - inner Brisbane seems to be swarming with folk who have just been "relieved" of previously lucrative mining contractor positions upstate, but the capital city employment market seems robust enough.

Construction booming

Over the past year Greater Brisbane has approved more than 12,000 units and apartments to be constructed.

This is a record high for attached dwelling approvals in the Queensland capital, and will ultimately transform much of the wilderness to the south of the river into somewhere that people might actually want to live.

We have approved 10,000 houses for construction in Greater Brisbane too, bringing the total value of Queensland residential building jobs approved to more than $11 billion on a rolling annual basis, which is rapidly approaching a record high.

This level of activity tends to create plenty of employment as well as delivering a potent multiplier, but it must be said that wages are unlikely to be as attractive as the FIFO type contracts which will likely keep a lid on the wage price index.

Weaker regions?

However, it is true that there appears to be widespread evidence of rising unemployment in some of the outer suburban regions to the north and in a number of regional centres, while a number of mining regions are also clearly struggling.

The Sydney employment market according to my professional networks (financial services) seems to have been relatively soft for a prolonged period of time.

Prior to the financial crisis there seemed to be a medley of positions for half decent candidates to mull over - and even for dolts like me! - but average wages growth pulled up sharply thereafter and the market seems to have been relatively subdued ever since.

My better half - who is also an FCA - informs me that recruiters have been on the blower an awful lot over the last few weeks, which is a promising sign for the wider employment market if not for her (she also seems to be enjoying rather too much time in The Coffee Club), while a few other former colleagues have been tentatively "putting feelers out".

Many are still in contract roles, however, often an indication that the labour market is not operating at the capacity that it once was.

The problem with anecdotes is typically the small sample size, and this is particularly so when the data is being collated by someone with very few friends to use as the sample.

Confidence intervals

Mind you the ABS confidence intervals aren't all that much more informed, with the 95 percent confidence interval for February 2015 comprising an encyclopedia of scenarios, ranging from total employment crashing by -42,400 in the month to booming by +73,600.

Summarily February's figures show that we are 95 percent sure that the economy is either booming or crashing. 

Not sure what scenarios the other 5 percent would comprise, but they must be hella wild!