April 2025
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How Useful are ‘Leading’ Labour Market Indicators at Forecasting the Unemployment Rate?
The RBA draws on a wide range of information to form our assessment of current labour market conditions and our outlook for the labour market. One of the key labour market indicators that the RBA monitors and forecasts is the unemployment rate. This article considers whether information contained in indicators that are typically viewed as signalling a change in conditions before it becomes apparent in the official labour market statistics – referred to here as ‘leading indicators’ – are helpful in forecasting the unemployment rate. It finds that information contained in measures of unmet demand, such as job advertisements and vacancies, and consumers’ expectations for unemployment are useful in informing the RBA’s near-term forecasts for the unemployment rate. Models containing these leading indicators can complement our existing framework for forecasting the unemployment rate, which also considers information such as developments in economic activity, insights from firms in the RBA’s liaison program and the experience of economies overseas.
Monetary Policy Transmission through the Lens of the RBA’s Models
Understanding how changes in the cash rate affect economic activity and inflation – so-called monetary policy transmission – is important for the RBA in pursuing its objectives of price stability and full employment. This article explains how the RBA uses its core models of the Australian economy to estimate the overall effects of policy, explore the different channels through which monetary policy transmits, and consider the economic outlook under alternative paths for monetary policy. The findings highlight that: the peak effect of policy is likely to occur after around one to two years; the exchange rate acts as an important transmission channel for policy; housing is a sensitive part of economic activity; and although individual households’ cashflow can be sensitive to changes in the cash rate, in aggregate it plays a smaller role in transmission.
Bank Funding in 2024
Bank funding costs are important in the transmission of monetary policy as they are a key determinant of the rates that households and businesses pay on loans. Bank funding costs increased only modestly in 2024, largely because the cash rate remained unchanged. The composition of banks’ funding shifted towards deposits over the same period, continuing a trend seen since the global financial crisis. Banks also managed the final maturities of the Term Funding Facility, issuing wholesale debt into favourable funding conditions. This article updates previous research published by the RBA on developments in the composition and costs of banks’ funding.
Explainer: Unemployment: Its Measurement and Types
This explainer outlines the importance of the unemployment rate to understanding conditions in the labour market and the economy more generally. It discusses how the unemployment rate is measured and the main types of unemployment.
Some graphs in this publication were generated using Mathematica.
ISSN 1837-7211