US: Labor Market Conditions Index


Tue Sep 06 09:00:00 CDT 2016

Actual Previous Revised
Level -0.7 1.0 1.3

Highlights
The labor market index has slipped back into contraction, at minus 0.7 in August vs a revised plus 1.3 in July. The July reading interrupted what were six straight negative results. Still, minus 0.7 is only marginally negative though it could help the doves hold off whatever chances there are of a rate hike at this month's FOMC meeting. Yet the weight this experimental composite of 19 separate indicators carries with policy makers is limited, underscored by Janet Yellen who in the past has downplayed the significance of this report.

Definition
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.

Description
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.

Importance
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.

Interpretation
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.