US: Labor Market Conditions Index

Mon Aug 08 09:00:00 CDT 2016

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Level 1.0 -1.9 -0.1

Nonfarm payrolls have risen a more-than-solid 255,000 and 292,000 the last two months but they barely register on the labor market conditions index, which at 1.0 in July and a revised negative 0.1 in June are completely flat.

But it takes more than just payrolls to move this index which is a broad composite of 19 separate indicators and is considered experimental by policy makers. This index trended in the positive mid-single digits during 2013 and 2014 before it began to gradually move south. But even at only 1.0, July's result is relatively good for this index, the first in fact to make it in the positive column this year.

Based on the long trend of this index, the labor market isn't that strong at all right now, yet Janet Yellen, back at June's FOMC press conference, downplayed the weight that this index carries with policy makers.

The Labor Market Conditions Index is an experimental indicator compiled by the Federal Reserve to track labor market activity. It is a broad composite with 19 components.

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.