As for the column, a few additional points are in order: First, sectoral details of the trend in employment reveal interesting facts. While the increase in employment in industry looks impressive, most of it is due to weak base effects- that is the sectoral equivalent of one of the major points in the column. The same is also true for construction, but services is the one that really puzzled me, as it has managed to suck in workers even through the crisis. When I dug deeper (but not as deep as Bilica), I was even more surprised: Most of the increases come from a single item, administrative and support services. Unless the demand for secretaries skyrocketed last year, I have no idea on how to explain this fact. So if you have a valid explanation, please go ahead and enlighten me.
As for my point on the NAIRU, I used a simple multivariate model, similar to the one used in an 2004 IMF working paper, although I had not seen the paper when I did it hastily Saturday night after heading straight home from a Besiktas loss @ Inonu. Since I was too lazy to write out my methodology in full, I searched for a paper that had done a similar thing, and this was the first one I came across.
Anyway, on to the column:
Last Monday’s unemployment data caused a difference of opinion among analysts, with your friendly neighborhood economist taking the data with caution and almost everyone else rejoicing over the figures. Some even claimed that PM Erdoğan, who had ruled that unemployment would fall to 10 percent several months ago, would be proven right as early as next month.
To recap, unemployment and non-farm unemployment came in at 11 and 13.8 percent respectively in May. While these numbers look impressive on a year-on-year basis, most of the improvement is due to the weak base from last year. In fact, seasonal numbers look less impressive, as seasonally adjusted unemployment remained unchanged from the previous month and seasonally adjusted non-farm unemployment even registered a small decrease.
Overall, the figures show that the improvement in labor market conditions is coming to a halt. They are also consistent with the slowdown in leading indicators in May: Purchasing Managers Index, capacity utilization and real and consumer confidence had all stalled in the same month, hinting that Europe's woes had somewhat spilled over into Turkey.
As for the future, I am confident that if the PM is proven right, it will not be in the June data. In fact, unemployment has usually increased from May to June in the past. Last year was a big exception, but even then headline and non-farm unemployment both fell 0.6 percent only.
On the contrary, the monthly KONDA surveys I have been working on regularly show unemployment picking up over the summer. KONDA numbers are naturally different from the official figures, but they have so far done an excellent job in predicting the direction of unemployment. And while consistent with seasonal trends, the stronger-than-expected increases over the summer, if realized, would mean that firms might have gone on a hiring spree in the second quarter due to optimistic domestic and global economic conditions.
Looking further ahead, in line with the recent improvement in leading indicators and the improvement in Europe, it is possible for seasonally adjusted unemployment to continue its downward creep. However, taking into consideration seasonal patterns, it is quite unlikely that the headline figure will touch the PM’s 10 percent target this year. But more important than a single number are the implications of this data on growth and monetary policy.
Forecasting has been tough of late due to the recent mixed data. For example, while leading indicators still look healthy, industrial production, usually a good predictor of growth, did decline 2.1 percent month-on-month in June. But existing data do not rule out an almost-double-digit yearly growth in the second quarter. Beyond that is anyone’s guess for now.
As for monetary policy implications, unemployment data are supportive of the Central Bank's hold-for-longer strategy, and other statistics are far from indicating the economy is overheating as well. Therefore, it is unlikely that the bank will start raising rates before well into next year, even without taking into consideration the politics of starting a hiking cycle before the elections.
One complication that has escaped many analysts is that Turkish non-accelerating inflation rate of unemployment, or NAIRU, might have moved as a result of the crisis. My back-of-the-envelope calculations hint to a seasonally adjusted NAIRU of around 11 percent. As seasonally adjusted unemployment is already at 12 percent, the bank may not have as much leeway as previously imagined.
Even if you see the 10 percent debate as a pissing contest, unemployment still needs to be tracked carefully despite being a lagging indicator released more than two months late.
*Emre Deliveli is a freelance consultant and columnist for Hurriyet Daily News & Economic Review and Forbes as well as a contributor to Roubini Global Economics. Read his economics blog at http://emredeliveli.blogspot.com.
Posts
No comments:
Post a Comment