Aug 2011

The Department of Labour’s Lead Employment Indicator is designed to give an advanced signal of turning points in the employment cycle. The Lead Employment Indicator combines information from five different components into a single indicator in order to predict future turning points in employment.

Results

• The Lead Employment Indicator moved sideways (by -0.1%) during the June 2011 quarter after it recorded seven quarters of positive change since September 2009. However, this will not indicate a downturn in employment over the coming year unless the Lead Employment Indicator is also negative in the September 2011 quarter.
• The Lead Employment Indicator can also be used to forecast short-term employment growth. The Lead Employment Indicator is currently predicting that employment will increase by about 0.6% in the third quarter of 2011 and by between 0.4% and 0.6% in the following two quarters.

Figure 1: Employment and Lead Employment Indicator

Data Table for Figure 1 [HTML]
Data Table for Figure 1 [CSV]

Source: Department of Labour, Statistics New Zealand
Note: shaded areas show a downturn in employment
Note: 1992=100

Components of the Lead Employment Indicator

The decline in the Lead Employment Indicator in the June 2011 quarter was mainly driven by a lower Southern Oscillation Index and lower PLT Arrivals, while there was slight growth in the ANZ Commodity Price Index.

Table 1: Components of the Lead Employment Indicator

Component	Quarterly change: March 2011 Quarter	Quarterly change: June 2011 Quarter	Weight in Index
QSBO (labour limiting factor)	-28.8%	40.8%	21.9%
ANZ Commodity Price Index (in NZD)	10.1%	0.4%	18.8%
PLT Arrivals	-0.6%	-1.3%	21.9%
Southern Oscillation Index (level)	21.2	9.1	17.4%
Stock Market Index	1.2%	3.6%	20.1%

Components are seasonally adjusted where necessary.  The weights in the table are applied to the standardised level of each component series and not to their percentage change. The components and weights will be reviewed when necessary.

Additional information

The Lead Employment Indicator is a combination of five different indicators that have historically been shown to lead changes in employment. The series is designed to give advanced warning of turning points in employment^[1]. The Lead Employment Indicator is more reliable than each component on its own because combined they cover a wider range of sectors.

A 'turning point' in the Lead Employment Indicator (or employment) series is confirmed when there are two consecutive quarterly movements in a new direction. This indicates a local peak or trough. Thus, with employment growth of 1.3% for the March 2011 quarter, the 0.3% decline in employment for the December 2010 quarter did not interrupt the upswing in the employment cycle as these two quarters did not form a consecutive change in a new direction. 

The 0.1% decline in the Lead Employment Indicator in the June 2011 quarter does not yet constitute a turning point in the employment cycle unless next quarter also records negative growth.

The average lead time between the Lead Employment Indicator turning point and a corresponding turning point in employment is variable but generally between one and four quarters.  The Lead Employment Indicator correctly anticipated the upturn in employment in the December 2009 quarter with a lead time of one quarter. It also gave advanced warning of the 2009 downturn in employment with a lead time of four quarters.

Users should note that the historical relationship between the Lead Employment Indicator and employment can vary from time to time. The Lead Employment Indicator is only one indicator of turning points in the employment cycle and should be used alongside other labour market indicators. 

For more information on the Lead Employment Indicator please refer to the background and methodology document: http://www.dol.govt.nz/publications/lmr/lioe/background.asp.

Release Details

The Lead Employment Indicator is available on a quarterly basis. 

For more information please contact

Will Bell (will.bell@dol.govt.nz)

For further information please visit http://dol.govt.nz or email research@dol.govt.nz.

Disclaimer: The Department of Labour has made every effort to ensure that the information contained in this report is reliable, but makes no guarantee of its accuracy or completeness and does not accept any liability for any errors.  The information and opinions contained in this report are not intended to be used as a basis for commercial decisions and the Department accepts no liability for any decisions made in reliance on them.  The Department may change, add to, delete from, or otherwise amend the contents of this report at any time without notice.  The material contained in this report is subject to Crown copyright protection unless otherwise indicated.  The Crown copyright protected material may be reproduced free of charge in any format or media without requiring specific permission.  This is subject to the material being reproduced accurately and not being used in a derogatory manner or in a misleading context.  Where the material is being published or issued to others, the source and copyright status should be acknowledged.  The permission to reproduce Crown copyright protected material does not extend to any material in this report that is identified as being the copyright of a third party. Authorisation to reproduce such material should be obtained from the copyright holders.

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