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July 28, 2023

U.S. labour’s leading indicators

A comprehensive understanding of where US employment is headed is key for gauging monetary policy
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In-house blogger
Guest blogger
Nicolas Tremel
Senior Economist and Strategist
All opinions expressed in this content are those of the contributor(s) and do not reflect the views of Macrobond Financial AB.
All written and electronic communication from Macrobond Financial AB is for information or marketing purposes and does not qualify as substantive research.

The Federal Reserve raised interest rates by a quarter percentage point on Wednesday, bringing the key policy rate to a range between 5.25 percent and 5.5 percent – a level last seen just prior to the 2007 housing market crash and closer to its expected terminal rate.

Both headline inflation and core inflation, which excludes food and energy, have eased more quickly than expected – reaching 3 percent and 4.8 percent year-on-year respectively in June. These figures remain well above the Fed's 2 percent inflation target, however.

To credibly reach that target, the labour market will need to weaken. Although US unemployment slightly increased to 3.6 percent in June, it is still close to its 50-year low.

For more insight, it’s worth examining the Employment Trends Index (ETI) from the Conference Board and its eight leading indicators of employment. These indicators provide valuable information about job market trends and potential turning points in employment growth or decline – and, by implication, the next stage of central bank monetary policy as well.

The overall ETI decreased by 3 percent year-on-year to a reading of 114 in June, showing that the labour market remains tight and is easing only gradually and slowly.

Let’s take a deeper dive into the ETI’s eight leading indicators of employment and whether they are making positive or negative contributions to that overall index.

1. The percentage of household survey respondents who say they find jobs “hard to get”: positive contribution

In June, this percentage decreased to 12.4 percent – suggesting that the job market is slightly more challenging.

2. Initial claims for unemployment insurance: negative contribution

This figure refers to the number of individuals who filed for unemployment benefits for the first time during a specified period. A higher figure suggests economic distress. This indicator is typically released weekly by the U.S. Department of Labor, and is closely watched by policymakers, economists, and investors.

In the most recent report, initial jobless claims rose 23,500 on a month-on-month basis.

3. Percentage of firms with positions they can’t fill: negative contribution

This indicator measures the degree of hiring difficulty experienced by small businesses. In June, it fell to 42 percent, continuing the descent from peaks above 50 percent in 2021-22.

4. Number of employees hired by the temporary-help industry: negative contribution

Staffing agencies provide short-term workers to fill in for absent employees, meet seasonal demands or work on specific projects. This indicator reflects the demand for flexible labour and the level of workforce utilisation by businesses. 

A rising figure suggests that businesses are experiencing a surge in demand but aren’t yet committing to long-term hires. However, this indicator fell to 3.01 million in June. 

5. Ratio of involuntarily part-time to all part-time workers: negative contribution

This indicator, collected by the U.S. Bureau of Labor Statistics (BLS), measures the proportion of part-time workers who find themselves in this situation involuntarily. A higher ratio suggests more underemployment, indicating that a larger portion of such workers would prefer more hours or full-time jobs.

The ratio had been hovering near a multi-decade low – but in the latest data, it rose to 16 percent. (Note the inverted axis in the chart.)

6. Job openings: positive contribution

A decline by this indicator would have suggested reduced demand for labour. But in June, this figure increased slightly, reaching 10.1 million.

7. Industrial production index: positive contribution

This crucial economic indicator measures output in sectors from manufacturing to mining and utilities. It’s typically based on the physical quantity of goods produced. To ensure accuracy, the data is seasonally adjusted, eliminating the influence of regular seasonal fluctuations.

Strong and growing industrial production is often associated with economic expansion, job creation, and heightened consumer demand, signifying a thriving economy. Indeed, June industrial production rose 0.3 percent year-on-year. 

8. Real manufacturing and trade sales: positive contribution

This inflation-adjusted indicator serves as a critical gauge of consumer and business spending behavior. Strong sales in this sector are typically associated with economic growth as they indicate higher consumer demand and increased business investment.

In June, this figure increased 2% year-on-year.

In summary, we had four indicators making a positive contribution, and four making a negative contribution. The result: the Conference Board Employment Trends Index (ETI) slipped from a record high, decreasing by 3 percent year on year in June.

This reflects a labour market where tightness is easing, but slowly. Another interest-rate hike in September can’t be ruled out. 

If you have any questions regarding this blog content please email on or reach out to him on LinkedIn.

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