Indicator to predict job swings

The Department of Labour has unveiled a leading indicator of employment designed to signal turning points in the employment cycle up to a year ahead.

"It will help businesses plan their workforce so they are fully prepared for upswings and downturns in the labour market," said the department's head of labour market information, Benedikte Jensen.

The indicator is quarterly and draws on five existing indicators but by combining them performs better than any of them on its own as a barometer of the labour market.

A turning point in the indicator is defined as either two consecutive declines following two consecutive rises (a downturn) or two consecutive rises following two consecutive falls (an upturn).

The department said a secondary function of the indicator would be to provide short-term estimates of the strength of employment growth (or contraction).

It said that at present the indicator suggested employment would grow between 0.1 and 0.5 per cent in the next two quarters and slightly more in the December quarter.

It has been tested and refined by applying it to the past and seeing how well it would have performed.

It would have signalled downturns in 1987 and 1990 two quarters ahead, the 1997 downturn five quarters ahead and a short-lived six-month downturn in employment in late 2006 two quarters ahead.

It signalled the most recent downturn in employment three quarters in advance.

But it is not infallible. The department warns that the indicator would have given false signals of a downturn in employment in 2000 and again in 2002/03.

The five indicators feeding into the new one were chosen from 97 possibilities.

They are: NZIER's quarterly survey of business opinion, especially the proportion of firms citing labour as a limiting factor on increasing output, permanent and long-term arrivals from Statistics NZ's external migration statistics, ANZ's export commodity price index, the NZX share price index and a meteorological indicator, the Southern Oscillation Index, which forewarns of El Nino conditions and the associated risk of drought.