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By Gary Morgan, Michele Levine & Julian McCrann

Yesterday's ABS unemployment estimates (showing January unemployment dropping to 5.1%) defy belief — and common sense. The constant stream of companies announcing retrenchments in the early stages of 2012 are a clear sign that the ABS figures are diverging from reality.

Roy Morgan’s unemployment estimate (10.3%, up 1.7% in January — released on February 3, 2012) provides a more accurate picture of what is happening on the ground in the Australian economy — and more importantly — what is happening NOW!

The key differences are outlined in this note (reproduced below*) we include in each of our monthly Roy Morgan unemployment releases. Most specifically, the third and fourth paragraphs in, namely: The ABS only classifies an unemployed person as part of the labour force if, when surveyed, they have been actively looking for work in the four weeks up to the end of the reference week and if they were available for work in the reference week.

This creates a natural lag on the ABS estimates whereas the Roy Morgan estimates are taken at that point in time. If the respondent is out of work and looking for work — we classify them as unemployed.

The ABS also uses a seasonal adjustment process to determine their final figure. In January this would have a larger than usual downward effect. Roy Morgan estimates show unemployment in January rising 9/11 years going back to the turn of the century. So ‘on the ground’ more people are looking for work after New Year than before — hardly surprising. The ABS seasonal adjustment process no doubt takes this “static” (school leavers, recent uni grads etc.) out of the picture — and there is no doubt it brings the ABS number down each January.

As mentioned before though — one of the key differences between the ABS estimates and the Roy Morgan estimates is the immediacy of the figures. Roy Morgan estimates are immediate, whereas to show up as unemployed in the ABS figures you may have lost your job in November or December last year. The ABS unemployment estimates constitute a ‘lagging’ indicator.

Malcolm Maiden today discusses the ‘lagging’ nature of the ABS estimates in his column— ‘Jobs data masks the real issues’.

“Leads and lags explain why a slew of job loss announcements have been followed by unexpectedly strong official (ABS) jobs numbers. It is the official data that is lagging.

“Employment is much softer in the parts of the economy that are not directly participating in the resources boom and being hit by its by-products, including relatively high interest rates and a high Australian dollar that is sucking in cheap imports and making exports more expensive.

“Companies that are not feeding at the commodity price trough are also bumping along the bottom of the gutter as Elmer Funke Kupper (CEO, Australian Stock Exchange) describes, as consumers continue to hedge their bets by saving more and spending less, and as the currency and interest rates remain relatively high.

“And after surveying the landscape in the second half of last year, a growing number have returned from the Christmas break with plans to cut their payroll cloth to fit.

“Job cuts already announced by the banks that are driven as much by low loan demand as funding pressures, and the cuts local car makers have announced as the dollar erodes their competitiveness, are not reflected in the bureau's data.

“Nor are the 500 jobs that Qantas said would go yesterday, or the 500 more that will almost certainly go after it completes a review of its three east-coast heavy aircraft engineering bases: that review will probably result in it focusing on its newest and most efficient base, in Brisbane, and merging and reducing the size of its Tullamarine and Avalon bases in Victoria.

“So the jobs outlook is worse than yesterday's Bureau of Statistics report for last month suggests.”

Also ignored by the ABS on a monthly basis is the large ‘army’ of Australians who work part-time but would like to work more hours — the underemployed. Roy Morgan estimates the level of underemployment in Australia each month. Roy Morgan’s January underemployment figure (934,000 — 7.5%) shows that not only are there more Australians looking for work than the ABS estimates show, but that nearly 1 million Australians who are employed want to find more work.

To provide a true and accurate measure of the employment situation in Australia the ABS must produce a monthly underemployment estimate as well as modify the way it measures unemployment to provide an accurate picture of the true state of unemployment in Australia.

*Roy Morgan monthly unemployment note:

The Roy Morgan Unemployment estimate is obtained by surveying an Australia-wide cross section with face-to-face interviews. An unemployed person is classified as part of the labour force if they are looking for work, no matter when. The results are not seasonally adjusted and provide an accurate measure of monthly unemployment estimates in Australia.

The Australian Bureau of Statistics Unemployment estimates are obtained by mostly telephone interviews. Households selected for the ABS Survey are interviewed each month for eight months, with one-eighth of the sample being replaced each month. The first interview is conducted face-to-face. Subsequent interviews are then conducted by telephone.

The ABS classifies an unemployed person as part of the labour force only if, when surveyed, they have been actively looking for work in the four weeks up to the end of the reference week and if they were available for work in the reference week.

The Australian Bureau of Statistics Unemployment estimates are also seasonally adjusted.

For these reasons the Australian Bureau of Statistics Unemployment estimates are different from the Roy Morgan Unemployment estimate.

Gary Morgan's concerns regarding the ABS Unemployment estimate is clearly outlined in his letter to the Australian Financial Review, which was not published! /news/papers/2003/20030801

For further information:

Gary Morgan: Office +61 3 9224 5213     Mobile +61 411 129 094

Michele Levine:  Office +61 3 9224 5215  Mobile +61 411 129 093
Julian McCrann: Office +61 3 9224 5365  Mobile +61 417 171 378

*Workforce includes those employed and those looking for work — the unemployed.

# The Gillard Government’s ‘Fair Work Australia’ Act was implemented on January 1, 2010, replacing the Howard Government’s ‘Work Choices’ Legislation.

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