Employment has been strong, especially the participation rate, but isn't being reflected in the Federal Reserve's labor market conditions index which came in at minus 2.1 in March vs a downwardly revised 2.5 percent decline in February. The index, experimental in nature, is a broad composite of 19 separate indicators and is rarely cited by policy makers.
The U.S. labor market is large and multifaceted. Often-cited indicators such as the unemployment rate or payroll employment, measure a particular dimension of labor market activity. It is not uncommon for different indicators to send conflicting signals about labor market conditions. The Fed's research department has created a labor market conditions index (LMCI) based on 19 labor market indicators. It is not an official report. However, the monthly publication is carefully noted by Fed Chair Janet Yellen and has gained market attention.
The LMCI index includes the following components: unemployment rate, labor force participation rate, part time for economic reasons, private payroll employment, government payroll employment, temporary help employment, average weekly hours (production), average weekly hours of persons at work, average hourly earnings (production), composite help-wanted index (Conference Board), hiring rate, transition rate from unemployment to employment, insured unemployment rate, job losers unemployed less than five weeks, quit rate, job leavers unemployed less than 5 weeks, jobs plentiful vs hard to get (Conference Board), hiring plans (NFIB) and jobs hard to fill (NFIB).
The Fed has a dual mandate from Congress healthy job growth and low and stable inflation. This index goes beyond just looking at the unemployment rate and payroll jobs gains. It provides a very broad view of the labor market that the Fed watches for one of the two mandates. This index at times can affect Fed policy.
The labor market conditions index summarizes a wide range of labor market indicators. The Fed not only created this index but also watches it for interpreting the health of the labor market.
The labor market conditions index is by definition an index. Higher index numbers are positives and vice versa. The report focuses on the change in the index how strong a plus change or a negative change. Plus indicates improving labor market conditions. But there is extreme detail with 19 components. Subcomponent detail can be important, depending on how many components are positive versus those that are negative or sluggish. A key feature of this report is that it pulls together many labor market indicators into one place.
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