ABS numberwang pushes up unemployment

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From the ABS review of its labour force survey, all of the revisions are quite negative with headline unemployment up 0.1 to 6.2% and employed persons down across the board:

This statement provides background information on issues identified in seasonally adjusted labour force estimates over the period July-September 2014, on the investigations undertaken to understand these issues and the proposed approach for the release of the October 2014 labour force estimates on 6 November 2014.

The key points are:

  • The ABS took the unusual step of setting the seasonal factors for most labour force series to one for July, August and September 2014.
  • A review of labour force estimates has identified changes in the seasonal patterns of most labour force series as a result of changes in the supplementary survey program from February 2014.
  • Labour force series other than those for aggregate monthly hours worked will be seasonally adjusted using a new method that treats effects from supplementary surveys as “prior corrections” rather than as ongoing seasonal influences.
  • The new method will be introduced into labour force seasonally adjusted series from December 2013 onwards in the October 2014 labour force release
        – prior to December 2013, the seasonal factors will be based on a concurrent analysis on the original (unadjusted) estimates up to and including September 2014
        – as a result, the seasonally adjusted estimates have changed slightly prior to December 2013 compared with those published in the September issue of

    Labour Force, Australia

        – these seasonally adjusted estimates will not change until the annual seasonal reanalysis is completed in early 2015
      – the seasonal factors for months from December 2013 will be reanalysed as each extra month is added to the series so revisions to the seasonally adjusted estimates from December 2013 will continue to occur monthly.
  • The new method will be introduced into the full length of the seasonally adjusted labour force estimates from February 1978 after the annual seasonal reanalysis is completed in early 2015
      – some estimates in these earlier months will be revised but most estimates will not be materially affected by this process.


BACKGROUND

The seasonally adjusted labour force series of employment and unemployment have been unstable in the past few months. In the August 2014 issue of Labour Force, Australia (cat. no. 6202.0), the ABS reported that it had investigated this instability but no systematic cause could be identified at that time. 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 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. 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.


INVESTIGATIONS

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. The movements between July and August 2014 for the seasonally adjusted employment series, especially part-time employment, were very large but again were 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.

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. The ABS decided an alternative treatment was required and, as an interim measure, set the seasonal factors to one for all variables other than aggregate monthly hours worked.

The ABS identified several possible reasons for seasonal patterns to have changed during 2014:

  • changes in the timing and content of the supplementary survey program (run in conjunction with the Labour Force Survey),
  • the introduction of web-forms, which can be used by survey respondents as an alternative to being interviewed by telephone or in person,
  • the introduction of a new labour force questionnaire, and
  • refinements to collection procedures.


The ABS has investigated the extent to which these issues may have influenced the seasonality of the labour force estimates of persons employed and unemployed. An effect that has proved to be significant is the change in the timing of the supplementary surveys that are run in conjunction with the labour force survey. In common with similar countries (e.g. Canada), responses to the main labour force survey are affected to some extent by the supplementary surveys. The effects vary, depending on the topics covered by the supplementary surveys and their length. For many years, most of these supplementary surveys were run in the same month each year. As a result, any effects on the original labour force estimates caused by having different supplementary surveys in different months have been largely removed from the seasonally adjusted estimates by the seasonal adjustment process.


TREATMENT FOR THE OCTOBER 2014 RELEASE

In the time since the September 2014 labour force estimates were released, the ABS has systematically assessed the effects of each supplementary survey on the labour force estimates. Significant effects have been found for some supplementary surveys, with little or no measurable impact caused by others. As a result of this analysis, an approach has been developed to re-estimate the seasonality of the labour force data with specific adjustments made for the changed pattern of supplementary surveys. This approach will be adopted for the October 2014 labour force release and will result in revisions to the previously-estimated seasonally adjusted (and consequently the trend) results.

In practice, the new seasonal methods should be used to revise the seasonally adjusted estimates for every month in the labour force estimates (i.e. from February 1978 to October 2014). However, checking the consistency of every series from 1978 is not possible in the short time available (the seasonal adjustment process is based on adjusting at a detailed level and aggregating the component series to the totals for persons employed and unemployed) even though the impacts will be small for most months.

The most urgent need has been to resolve the problems in the last few months in the time series. Therefore, as an interim measure, the new approach has been used only from December 2013 to October 2014. In practice, the impact of this interim measure on the percentage changes in seasonally adjusted persons employed and unemployed between November and December 2013 is minimal.

The revised methodology will be applied in future months. In addition, work will continue on refining the methodology and verifying the changed seasonal factors for the full length of the monthly series. The ABS expects to revise all the seasonally adjusted data in conjunction with the annual seasonal reanalysis in early 2015.

The Labour Force Survey uses the concurrent seasonal adjustment method to derive seasonal factors. Concurrent seasonal adjustment uses data up to the current month to estimate seasonal factors for the current and all previous months. This process can result in revisions each month to estimates for earlier periods. However, in most instances, the only noticeable revisions will be to the seasonally adjusted estimates for the previous month and one year prior to the current month. Concurrent seasonal adjustment will continue to be used during the next few months. However, as an interim measure, any revisions to seasonally adjusted estimates will be restricted to the period from December 2013 onwards until the annual seasonal reanalysis is completed in early 2015.

Setting the seasonal factors to one for the seasonally adjusted unemployment estimates for July, August and September 2014 published on 9 October resulted in a slight downward bias in the number of persons unemployed and the unemployment rate for those three months. This was not observed in other series and has been rectified by the new seasonal analysis.


REVISIONS TO THE SEASONALLY ADJUSTED ESTIMATES

The following graphs show the seasonally adjusted estimates of persons employed and persons unemployed when the September 2014 issue of Labour Force, Australia (cat. no. 6202.0) was released and what they will be in the October 2014 issue, to be released on Thursday 6 November. The revisions to the unemployment rate in every month were either zero or 0.1 percentage points when using rounded data.

The following tables show the recent history of the key labour force series in seasonally adjusted terms and those to be published in the October 2014 issue of Labour Force, Australia.

TOTAL EMPLOYED (PERSONS) – SEASONALLY ADJUSTED

Month
(’000)
% change (Mt/Mt-1)
% change (Mt/Mt-12)
Revised
As at Sept 2014
Revised
As at Sept 2014
Revised
As at Sept 2014

June 2013
11 476.6
11 478.0
0.1
0.1
1.2
1.2
July 2013
11 468.5
11 472.6
-0.1
0.0
1.1
1.1
August 2013
11 450.2
11 465.8
-0.2
-0.1
0.9
1.0
September 2013
11 475.4
11 470.6
0.2
0.0
0.8
0.8
October 2013
11 486.7
11 475.2
0.1
0.0
0.8
0.8
November 2013
11 497.1
11 491.3
0.1
0.1
0.9
0.9
December 2013
11 469.4
11 467.5
-0.2
-0.2
0.6
0.5
January 2014
11 484.6
11 488.1
0.1
0.2
0.5
0.4
February 2014
11 520.8
11 536.2
0.3
0.4
0.5
0.6
March 2014
11 560.3
11 558.2
0.3
0.2
1.1
1.1
April 2014
11 564.1
11 567.6
0.0
0.1
0.8
0.9
May 2014
11 558.7
11 561.9
0.0
0.0
0.8
0.9
June 2014
11 575.6
11 578.2
0.1
0.1
0.9
0.9
July 2014
11 600.8
11 590.1
0.2
0.1
1.2
1.0
August 2014
11 591.8
11 622.2
-0.1
0.3
1.2
1.4
September 2014
11 568.1
11 592.5
-0.2
-0.3
0.8
1.1

NOTE: Revised = To be used in the October 2014 publication.
As at Sept 2014 = Presented in the September 2014 publication.

TOTAL UNEMPLOYED (PERSONS) – SEASONALLY ADJUSTED

Month
(’000)
% change (Mt/Mt-1)
% change (Mt/Mt-12)
Revised
As at Sept 2014
Revised
As at Sept 2014
Revised
As at Sept 2014

June 2013
695.5
691.6
2.3
2.2
12.2
12.0
July 2013
684.1
691.9
-1.6
0.0
10.3
10.7
August 2013
698.2
703.1
2.1
1.6
14.7
14.9
September 2013
695.7
694.3
-0.4
-1.3
4.8
4.7
October 2013
700.8
701.6
0.7
1.1
8.7
8.7
November 2013
704.2
704.9
0.5
0.5
11.7
11.7
December 2013
724.0
713.7
2.8
1.2
11.1
9.6
January 2014
733.6
729.6
1.3
2.2
11.4
11.0
February 2014
721.2
741.8
-1.7
1.7
10.1
13.1
March 2014
717.3
715.3
-0.5
-3.6
5.5
5.3
April 2014
723.2
716.6
0.8
0.2
5.6
5.1
May 2014
730.0
721.5
0.9
0.7
7.3
6.6
June 2014
746.2
741.3
2.2
2.8
7.3
7.2
July 2014
759.8
743.0
1.8
0.2
11.1
7.4
August 2014
747.3
735.5
-1.6
-1.0
7.0
4.6
September 2014
765.0
746.6
2.4
1.5
10.0
7.5

NOTE: Revised = To be used in the October 2014 publication.
As at Sept 2014 = Presented in the September 2014 publication.

UNEMPLOYMENT RATE (TOTAL PERSONS) – SEASONALLY ADJUSTED

Month
Revised to be used in October 2014 publication
Presented in the September 2014 publication
%
%

June 2013
5.7
5.7
July 2013
5.6
5.7
August 2013
5.7
5.8
September 2013
5.7
5.7
October 2013
5.7
5.8
November 2013
5.8
5.8
December 2013
5.9
5.9
January 2014
6.0
6.0
February 2014
5.9
6.0
March 2014
5.8
5.8
April 2014
5.9
5.8
May 2014
5.9
5.9
June 2014
6.1
6.0
July 2014
6.1
6.0
August 2014
6.1
6.0
September 2014
6.2
6.1

THE EFFECTS ON TREND ESTIMATES

Revisions to seasonally adjusted estimates flow through to the trend estimates. However, as the following graphs show, the revisions to the trends of persons employed and persons unemployed were much smaller than those for the seasonally adjusted estimates. The revisions to the unemployment rate were mainly in the last three months in the series.

CONCLUSION

The ABS aims to minimise the impact of changes in the supplementary survey program on the key labour force estimates by continuing to monitor seasonal patterns and the performance of the new seasonal adjustment method. Users will be kept informed of any new developments by notes in Labour Force, Australia (cat. no. 6202.0).

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.