Monday, 8 September 2008

Job Ads Signal Warning for Labour Market

ANZ released their monthly job add series today which showed job advertisements fell a seasonally adjusted -4.9% in August after a -0.3% decrease in July. The total number of advertisements in August was -0.3% lower than 12 months ago. How good a predictor of employment growth is this series? According to the ANZ website:

It has historically proved to be a very good indicator of future labour market conditions and thus, is extensively relied upon for forecasting employment growth.

But lets not take ANZ's word for it, what does the ABS say about it? The ABS found that:
ANZ (newspaper) Job Advertisement Series leads peaks in employment growth by one to three quarters, and troughs in employment by zero to two quarters. The ABS analysis finds that the ANZ Job Advertisements Series has a correlation coefficient of 0.75 with employment growth at a lead period of three quarters.

And here is a pretty graph to prove it.

Note that the correlation relates to Newspaper based ads, and since a little thing called the internet caught on a few years back that is no longer as reliable. Looking at the internet data shows that it is not a good predictor of future labour market growth.

However the trend is clear, job ads whether Newspaper or Internet based have fallen sharply over the last 6 months. Taken together with recent layoff announcements and a general slowing in the economy is all the evidence I need to draw the conclusion that we can expect a softer labour market in the coming months.