The DEEWR Monthly Leading Indicator of Employment for Australia - A view from the inside

Abstract

The new DEEWR Monthly Leading Indicator of Employment for Australia has been in operation since July 2007. While it is too early to conduct a proper evaluation on its performance since it has only been released for around a year and a half, it is an opportune time to make some comments on how it has been performing.

There has only been one turning point in the Indicator and in cyclical employment during this time - a peak in the Indicator in January 2008, followed by a peak in cyclical employment in April 2008. While the peak in cyclical employment was correctly predicted by the Indicator, the lead time was only three months, which is insufficient time to be really useful for policy or program responses. The three components of the Indicator with the highest weightings also had a lead time of around three months with cyclical employment.

It is not feasible to conduct an up-to-date comparison with the previous version o f the Department 's Leading Indicator of Employment. This is because one of the components of the former Indicator was the ABS Job Vacancies series, which is no longer released by the ABS.

The performance of the Indicator in the context of the Global Financial Crisis is discussed in this paper. There are many series that are newly being monitored by economic analysts in Australia to get a better understanding of the Global Financial Crisis and how it is likely to affect Australia. Examples of such series are US housing starts and established house prices, sub-prime mortgage delinquency rates in the USA, the US Treasury-Eurodollar interest rate spread and yield curve and the Baltic Exchange Dry Index o f shipping freight rates. While consideration could be given to including offshore indicators in a future version of the Indicator, it would be problematic to attempt to include most of them at this stage.