I’m glad Queensland Treasury Corporation (QTC) remains optimistic about the economic outlook, even after last week’s discouraging labour force data, but I’m afraid one reason behind its optimism is unfounded. In its Weekly Market and Economics Review sent out via email this afternoon, QTC notes:
Employment fell by a surprising 3,700 in January, with full-time employment falling by 7,100. The unemployment rate rose from 5.85 per cent to 5.98 per cent—a ten-year high—while the participation rate was steady at 64.5 per cent. The only encouraging element of the labour force report was that hours worked rose strongly in the month and are rising steadily in trend terms, which may be a positive sign for future employment. While the labour market is clearly soft, it is worth remembering that it is a lagging economic indicator. [emphasis added]
Unfortunately, it’s incorrect to say the labour market is a lagging indicator, as explained in the US context in an excellent article by Henry Blodget in 2009:
While the unemployment rate can be a lagging indicator, for reasons well explained by Blodget, employment is clearly a coincident indicator, and changes in employment tell us something about current economic conditions. This is why economic commentators typically pay close attention to employment growth in the ABS’s labour force data.
QTC appears to have misunderstood the information conveyed by recent labour force data, and it may have downplayed the significance of the fall in employment in its assessment of current economic conditions and the future outlook.