In September last year, the Australian Bureau of Statistics (ABS) released nonsensical employment numbers for August, which claimed that a record 121,000 jobs were created in a single month but contradictorily no change in the total number of hours worked. These results lead to wide spread ridicule and condemnation from analysts and commentators, prompting the ABS to undertake a detailed review and adjustments of its methodology, in particular in the way that it treats seasonality.
Today, Fairfax’s Peter Martin has reported that yesterday’s labour force figures for January, which posted a sharp seasonally adjusted increase in unemployment to 6.4%, also cannot be trusted, with new head of the ABS, David Kalisch, urging analysts to not rely on the headline figure:
David Kalisch says the media and markets should focus instead on what the bureau calls its 95 per cent confidence interval, reporting that the bureau is confident the true rate is between 6 per cent and 6.8 per cent.
It would mean reporting that the total number of Australians in jobs did something between sliding 72,200 in January and climbing 45,800. It would mean reporting that the number of Australians unemployed did something between climbing 74,900 and falling 5900. It would mean acknowledging that the bureau’s employment estimates are even less accurate than is widely believed.
…people need to recognise that it is just that – a survey, of about 26,000 households conducted once a month. “Any sense that the number is exactly whatever we report to the second decimal point is not an accurate use of those numbers,” he says…
Kalisch also notes that the ABS has been crippled from widespread budget cuts, and that the computer system used to create its labour force data is 30 years old and in desperate need of upgrading (at a cost of hundreds of millions of dollars).
As I noted last year when commenting on September’s labour force data debacle, the reduced reliability of the ABS employment statistics is hardly surprising. The organisation was forced to cut its expenditure by $50 million over three years, as part of the Federal Budget, which led to 100 staff being cut from the ABS. This followed a $20 million reduction in funding by the former Labor Government, which also saw the labor force survey sample size reduced.
So effectively, the ABS has been asked to perform its functions using: a reduced sample, less staff, and an antiquated computer system. No wonder accuracy has suffered.
A broader concern is that timely and accurate data are vital to good decision making, and the cuts to the ABS’ workforce and capability risks hampering the Government’s ability to formulate policy, the RBA’s ability to accurately read the economy and formulate monetary policy, as well as the public’s decision making and ability to evaluate policy.
In short, cutting the Bureau’s funding and capability will provide negligible cost savings to the Budget and potentially impose costs on the Australian economy over the longer-term via incorrect policy responses. Becoming less informed during what is likely to be the greatest structural adjustment affecting the Australian economy since the early-1990s recession is clearly a retrograde move.
In any even, when it comes to the ABS’ labour force data, it is best to ignore the headline seasonally adjusted figures altogether, and instead focus on the more reliable trend estimates (see below charts). These show that unemployment has been trending-up slowly and aggregate hours worked trending down, which seems appropriate given the broader state of the economy.