October 2012 Employment Index Grows but Forecasts Weak Growth

Written by Steven Hansen

Before analyzing the Conference Board’s October employment index, one more look at last Friday’s BLS jobs report.

  • Overall the BLS employment report was neither great or bad – the report was about average since the 1Q2011;
  • Staying with the unadjusted establishment portion of the Jobs Report, it was less good than 2010 and 2011, but better than average historically.

Today the Conference Board reported their October 2012 employment trends index increased. This index is continuing to say employment growth will be sluggish  in the coming months according to the index authors.

The seasonal adjusting methodology of the BLS continues to hide the underlying dynamics.  The graph below compares the October month-over-month changes since 2004.  I can make no sense out the seasonal adjusting methodology.

Non-Farm Private Employment Growth – Octobers Comparing Unadjusted and Adjusted Jobs Growth

You can see from the blue bars on the below graph, that jobs growth is about average for year-over-year growth since 1Q2011.  The red line gives you the growth trend – which shows it is neither up or down.

Change in the Rate of Growth Annualized of Private Non-Farm Jobs (red line, right axis) and Year-over-Year Growth (blue bars, left axis)

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From the Conference Board:

The Conference Board Employment Trends Index™ (ETI) increased in October, following a decline in September. The index now stands at 108.16, up from 107.63 (a downward revision) in September. The October figure is 4.6 percent higher than a year ago.

“The Employment Trends Index bounced back in October, but only to the levels of July and August,” said Gad Levanon, Director of Macroeconomic Research at The Conference Board. “This is still a weak signal. And given the recent sluggishness of economic activity, employment growth is poised to remain slow in the coming months as well.”

October’s rise in the ETI was driven by positive contributions from six of its eight components. The improving indicators — from the largest positive contributor to the smallest — were Ratio of Involuntarily Part-time to All Part-time Workers, Percentage of Respondents Who Say They Find “Jobs Hard to Get,” Initial Claims for Unemployment Insurance, Number of Temporary Employees, Industrial Production, and Real Manufacturing and Trade Sales.

To add context to this index, the following graph compares 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.

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


The graph above offsets the Conference Board ETI by 3 months. My take is that neither Econintersect or The Conference Board ETI are 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).

Current Historical Unadjusted Private Non-Farm Jobs Growth Between September and October (Table B-1, data in thousands)

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The bottom line is that the jobs situation seems to be in a softer period through the end of the year.

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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