Lies, Damned Lies, and Unemployment Figures

Brian Gaynor in the NZ Herald wrote a good piece on Lies, Damned Lies, and Statistics. Share prices and bond markets are moved by variables including market indicators and statistics on interest rates, inflation and unemployment. The variables are important in other ways, too. Interest rates affect mortgages, inflation harms those on fixed incomes and rising unemployment breeds job insecurity. Yet do many of us really understand how the figures are calculated? Do we really know how to interpret them? If we don’t, should we strive to know more?

We certainly should. Many commentators make a good living out of describing and interpreting statistics. Often their comments are commonplace and uninteresting.The pundit industry would collapse if we all knew more about these numbers and could judge them for ourselves. Interpreting market indicators is a minefield. Many indicators are official statistics that relate to economic performance. Although official statistics are usually honestly compiled, their accuracy varies.

While you can generally trust data published by, for example, Statistics New Zealand, you need to be aware of the limitations of the numbers. Unemployment and the ways that it is calculated varies considerably. It is a very influential indicator – the US Federal Reserve and its monetary policy is impacted by the levels of unemployment. They have said that if unemployment hits the 6.5% threshold it may consider raising interest rates.

In New Zealand the official measurement is the “Household Labour Force Survey (HLFS)” which is conducted every 3 months, covers about 15,000 private households and about 30,000 individuals.

Another measure is the unemployment benefit which counts those looking for work or in training who are eligible for payment of the benefit.

A third measure,the registered jobseeker statistic, is an administrative statistic affected by seasonal fluctuations and by changed administrative practices. Historically, it counted those who registered with the Department of Labour to find work (from late 1998, Work and Income New Zealand). As well as those out of work and available for work it includes people who work up to 29 hours a week who seek to increase their hours of work and does not include specific job availability or search criteria.

The difference between these three measures can fluctuate dramatically. See the graph below from the Parliamentary Library.

NZ Unemployment 2013

Confusing signals from New Zealand employment data

You may have heard Stephen Topliss of the BNZ in the media this morning talking about the inconsistent employment data that was recently published. In 2012 30,00 people lost their jobs and there was drop in the number of participants in the labour force by 48,000 as people gave up looking for work – see diagram below for Composition of Labour Force. There are some conflicting pieces of data:

1. The unemployment rate fell from 7.3% to 6.9% over the last quarter but this most probably is due to the fact that the participation rate has fallen.
2. The number of people employed fell by 1.4% for 2012 but the Quarterly Employment Survey suggests that employment grew by around 1.5% over the last year.
3. Business intentions and actions are inconsistent – survey indicate that they expect to hire more labour but ultimately they don’t
4. In surveys consumer confidence is high with the backdrop of so many losing their jobs
5. Housing market usually reflects the state of the labour market – today employment market poor

It begs the question how accurate is the employment data. Lies, damn lies and statistics.

Composition of Labour Force in New Zealand January 2012
NZ Labour Market