5206.0 - Australian National Accounts: National Income, Expenditure and Product, Jun 2005  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 07/09/2005   
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September 7, 2005
Embargoed: 11:30 AM (AEST)
Relationship between GDP and employment

The following is an abstract for a feature article released today in conjunction with the June quarter 2005 Australian National Accounts (cat. no. 5206.0)

Over the past 12 months there has been significant interest in the relationship between movements in economic activity represented by Gross Domestic Product (GDP) growth and movements in the labour market represented by employment growth. Commentators have been interested by the ongoing strength in the labour market relative to the weaker movements in GDP. The article presents a description of the relationship between these two variables with a particular focus on the way in which movements in time series are analysed and compared and the historical relationship between the variables. Some thoughts as to the nature of the relationship between the two series are also provided, although no definitive explanation of the pattern observed in the last 12 - 18 months is given.

A comparison of quarter on quarter trend movements in GDP and employment shows a turning point in the growth rates in both series in the last 18 months. GDP growth peaked in December quarter 2003 and employment growth peaked in December quarter 2004 - see chart below. A different picture is painted if the analysis of the two time series is undertaken in 'through the year' seasonally adjusted terms. Using this transformation GDP growth peaked in June quarter 2004 while employment growth is yet to peak. ABS believes that the description of turning points using 'through the year' analysis is misleading and a more considered analysis can be undertaken using trend movements, such as those compiled by the ABS.

GDP and Employment, Quarter on quarter trend movements
Graph: GDP and Employment, Quarter on quarter trend movements

The lag in employment growth of four quarters is slightly longer than average past lags in growth rates between these variables but not unusual. The article considers two factors that are thought to be having an impact on the relationship between GDP and employment growth over the last 18 months:
  • the strong growth in the terms of trade
  • the relatively mild growth in real unit labour costs.

Preliminary analysis suggests that both of these factors have contributed to the slightly longer than usual lag between the recent peaks in GDP growth and employment growth.