US Watch
Group Economics Macro & Financial Markets Research
23 June 2016
The retreat of the Fed’s labour market conditions index
have weakened in the past five months, albeit at a different pace
Maritza Cabezas Senior Economist
Two broad metrics that capture the conditions of the US labour market
Tel: +31 20 343 5618
Despite the loss in momentum, Chair Yellen still sees a healthy labour market; other labour market indicators are still flashing green
maritza.cabezas@nl.abnamro.com
We think that gains in nonfarm payrolls should recover, lifting the labour market conditions index, but will likely hover a bit below the average reported in the past year
The Fed’s metrics to assess conditions in the labour market Against the backdrop of the recent weak jobs market report, we think the slowdown in the jobs market warrants more attention. In a speech in Jackson Hole in 2014, Chair Yellen mentioned that she looked closely at two indicators that capture the labour market conditions. The first, the Fed’s Board Labour Market Conditions Index (LMCI), which includes 19 indicators, to a large extent included in the labour market report published by the Bureau of Labour Statistics. Among the indicators included are the payroll employment, labour force participation rate, workers classified as part time for economic reasons, hires and quits. The index does not include job openings, or data derived from business and consumer surveys that assess the pulse of economic activity. The second gauge Yellen said she followed closely, is a related index on the labour market published by the Federal Reserve Bank of Kansas. This metric includes 23 indicators and adds some of the employment surveys, such as ISM manufacturing employment that was omitted by the previously mentioned metric. In both indicators, a positive value indicates that it is above the long-term average.
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