US: Labor Market Conditions Index


Mon Nov 07 09:00:00 CST 2016

Actual Previous Revised
Level 0.7 -2.2 -0.1

Highlights
Average hourly earnings are one of 19 indicators tracked in the labor market conditions index but the component no doubt made an outsized contribution to the October composite which rose to plus 0.7 for only the third positive readings this year. The unemployment rate is another of the many components and its 1 tenth decline to 4.9 percent is also a positive for the composite. Another positive in the data is a sharp upward revision to the September headline from an initial minus 2.2 to a marginally negative minus 0.1, again in part reflecting average hourly earnings which were revised higher in September. Elements of last week's employment report, especially wages, are consistent with a pivot higher for the labor market and today's gain in this index could be offering its own signpost.

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.