US: Labor Market Conditions Index

Highlights
The economy may be at full employment but it's not helping the labor market conditions index which remains flat. For the first negative score since May, December's index comes in at minus 0.3. Based on this report, there may be more slack than suspected and less risk perhaps of wage inflation. Considered experimental, the labor market conditions index, published by the Federal Reserve, is a composite of 19 separate indicators.

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.