May 2012 Employment Trends: Jobs Growth Should Not Deteriorate Further

Written by Steven Hansen

Today the Conference Board reported their May employment trends index rose moderately for the last two months.   This index is saying employment growth will not deteriorate further according to the index authors.

This gives Econintersect one more chance to Monday morning quarterback the Jobs situation after the BLS jobs report on Friday -the third bad report in a row. As Econintersect has continued to remind its readers, a 2% growth economy is not up to producing a lot of jobs – and it now appears that the relatively strong jobs growth seen in the recent past is reverting to a more typical (and poorer) growth which is predicted by the current economic dynamics.

First a look at the Conference Boards May 2012 Employment Trends Index™ (ETI).

…..ETI increased 0.29 percent in May to 108.34, up from the revised figure of 108.03 in April. The May figure is 7.6 percent higher than a year ago.

“While growth in employment has slowed significantly in recent months, the Employment Trends Index does not signal further slowing in the coming months,” said Gad Levanon, Director of Macroeconomic Research at The Conference Board. “Employers have been very cautious in hiring in the past two months, but at the moment, economic activity in the U.S. is just strong enough to require a modestly growing workforce.”

May’s increase in the ETI was driven by positive contributions from five of the eight components. The improving indicators – beginning with the largest positive contributor – were Percentage of Firms with Positions Not Able to Fill Right Now, Initial Claims for Unemployment Insurance, Number of Employees Hired by the Temporary-Help Industry, Job Openings and Industrial Production.

To add context to this index, the following graph adds BLS non-farm payrolls and the Econintersect Employment Index to the 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.

The graph above offsets the Conference Board ETI by 3 months. My take is that neither Econintersect or The Conference Board ETI is mimicking the actual BLS jobs data. The Conference Board tries to predict turning points (which it appears to be good at) – but is unable to predict the intensity of the upward or downward movements. Econintersect attempts to predict intensity of movement (which it appears it is much better at than the ETI) – and is predicting a continuing weak labor market (which the labor market until recently has been stronger than Econintersect‘s index would have predicted).

One more kick at the employment situation using ADP vs BLS data.

The above graph is year-over-year change in private non-farm employment growth with ADP (blue line) and BLS (red line). You will note that BLS’s rate of growth has been stronger then the ADP’s number for almost a year. It appears the BLS numbers are converging on the ADP numbers.

Employment growth between ADP and BLS has now converged.

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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