US: Labor Market Conditions Index


Mon Dec 05 09:00:00 CST 2016

Actual Previous Revised
Level 1.5 0.7 1.4

Highlights
The labor market is running slightly in the positive zone, at plus 1.5 in November vs an upward revised 1.4 in October. Levels are subdued but this is still the best two-month run of the year. Pluses include payroll growth and also an improving consumer assessment of job availability. A leading positive for the report is November's 3 percentage point decline in the unemployment rate to 4.6 percent, but a misleading indication of strength perhaps given declines in the labor participation rate.

This index may not be signaling overheating in the labor market, but it is signaling positive conditions that given a dwindling availability of workers may raise concerns over wage inflation ahead. The labor market conditions index, published by the Federal Reserve, is a composite of 19 separate indications that policy makers consider to be experimental.

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.