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posted on 08 August 2016

July 2016 Conference Board Employment Index Improves But Suggests Employment Growth Is Surprising

Written by Steven Hansen

The Conference Board's Employment Trends Index - which forecasts employment for the next 6 months increased but its authors state "it is surprising that hiring has been so robust, given the current slow economic growth environment."

Econintersect is forecasting a moderately improving jobs growth rate six months from now. Note that the Econintersect Employment Index is not based on employment data.

From the Conference Board:

The Conference Board Employment Trends Index™ (ETI) increased in July, after increasing in June. The index now stands at 128.28, up from 127.89 (a downward revision) in June. The change represents a 1.6 percent gain in the ETI compared to a year ago.

"The Employment Trends Index is still suggesting that job growth will slow in the coming months, despite strong employment numbers for June and July," said Gad Levanon, Chief Economist, North America, at The Conference Board. "It is surprising that hiring has been so robust, given the current slow economic growth environment. Perhaps, economic growth is actually stronger than the anemic 1.2 percent GDP growth reported for the past four quarters."

July's increase in the ETI was fueled by positive contributions from five of the eight components. In order from the largest positive contributor to the smallest, these were: Percentage of Respondents Who Say They Find "Jobs Hard to Get," Number of Employees Hired by the Temporary-Help Industry, Job Openings, Industrial Production, and Initial Claims for Unemployment Insurance.

z%20conference%20board%20employ.png

To add context to this index, the following graph compares BLS non-farm payrolls, the Econintersect Employment Index, and The Conference Board ETI. Econintersect uses non-labor and mostly non-monetary economic pulse points in constructing its index, while The Conference Board uses mostly elements of employment data.

Comparing BLS Non-Farm Employment YoY Improvement (blue line, left axis) with Econintersect Employment Index YoY Improvement (red line, left axis) and The Conference Board ETI YoY Improvement (yellow line, right axis)

employment_indices.png

The graph above offsets the Conference Board ETI by 5 months. Note that the Conference Board is currently projecting a declining growth rate and the Econintersect index is also showing a declining rate of growth.

A relatively new index is produced by the Federal Reserve.

The LMCI is derived from a dynamic factor model that extracts the primary common variation from 19, seasonally-adjusted, labor market indicators. Users can read about the included indicators at http://www.federalreserve.gov/econresdata/notes/feds-notes/2014/updating-the-labor-market-conditions-index-20141001.html.

Users of the LMCI should take note that the entire history of the LMCI may revise each month. Three sources contribute to such revisions. The first source is new data that were not available at the time of the employment report. In particular, at the time of the Employment Situation report each month, the quit rate and hiring rate will be missing for the last two months of the sample because the Job Openings and Labor Turnover Survey is published with a longer lag than the model's other indicators. In subsequent months, as these data become available, the LMCI will revise.

The second source of revision comes from revisions to existing data. Many labor market indicators are subject to revision as additional source data become available or to incorporate annual benchmark revisions or updated seasonal adjustment factors. Prominent examples in the LMCI include the three payroll employment series from the Current Employment Statistics program.

The third source of revision is inherent to the model. The LMCI is derived from the Kalman smoother, meaning that the estimate of the index in any particular month is the model's best assessment given all past and future observations. Thus, when a new month of data is added to the sample, the model will revise its estimate of history in response to the new information. In practice, these revisions tend to be modest and concentrated in the most-recent six months of the sample.

As this index can change so completely each month, we do not believe it can be used to forecast or trend - but is simply presented for reader information.

Comparing the LCMI (blue line, left axis) to Year-over-Year Growth Rate of Non-Farm Private Employment (red line, right axis)

Caveats on the Employment Trends Index

According to the Conference Board:

The Employment Trends Index aggregates eight labor-market indicators, each of which has proven accurate in its own area. Aggregating individual indicators into a composite index filters out "noise" to show underlying trends more clearly.

The eight labor-market indicators aggregated into the Employment Trends Index include:

  • Percentage of Respondents Who Say They Find "Jobs Hard to Get" (The Conference Board Consumer Confidence Survey
  • Initial Claims for Unemployment Insurance (U.S. Department of Labor)
  • Percentage of Firms With Positions Not Able to Fill Right Now (© National Federation of Independent Business Research Foundation)
  • Number of Employees Hired by the Temporary-Help Industry (U.S. Bureau of Labor Statistics)
  • Part-Time Workers for Economic Reasons (BLS)
  • Job Openings (BLS)
  • Industrial Production (Federal Reserve Board)
  • Real Manufacturing and Trade Sales (U.S. Bureau of Economic Analysis)

Unfortunately many of these indices are not accurate in real time being subject to at times significant backward revision.



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