Leading Indicators of Employment in South Africa

by DAVIES, R. and VAN SEVENTER, D., 2009
Research Report, Human Sciences Research Council, March 2005

Davies and van Seventer explore how an indicator might be constructed that can be used to predict employment. It assesses the various series that are used to construct the South African Reserve Bank’s leading, coincident and lagging indicators of the business cycle Business cycle analysts typically identify cycles in GDP and then examine series of other variables to find those whose turning points precede GDP turning points with some regularity (leading indicators), those where turning points coincide (coincident indicators) and those where the turning points occur after GDP (lagging indicators). Having identified leading series, a composite leading indicator is then constructed as a weighted aggregation of the leading series. The weights are typically determined by an econometric process to find the best-fitting composite. This paper aims to do likewise for employment (rather than GDP) cycles. For such an indicator to become useful, it should be produced on a systematic and regular basis over a number of years. The aim is to establish a prima facie case for institutionalising the regular production of an employment indicator series.