Employment Concerns (Chart Of The Week)
Our featured chart from the EPB Weekly Economic Briefing / Week 27
The Employment Situation Report for June showed that the unemployment rate increased to a rounded 4.1% — more than consensus expectations.
While total nonfarm payrolls showed a gain of more than 200,000, job gains for April and May were revised down harshly by 111,000.
The steady streak of negative revisions, particularly to the extent that we've seen over the past 12 months, is generally reserved for recessionary or pre-recessionary periods.
The market rightly expressed concern about the most recent job numbers, with the odds of interest rate cuts from the Federal Reserve increasing rather sharply after the report.
The monthly Employment Situation report includes many different measures of the labor market, and sometimes, they can give slightly different impressions of its health.
This is normal as each measure has a slightly different measurement technique.
One single indicator is never perfect, which is why, at EPB Research, we use a basket or composite indicator approach to measure all different sectors of the economy.
Should we focus on the monthly nonfarm payroll figures? What about the household survey? Should we ignore the unemployment rate?
All these measures are perfectly valid and should hold equal weight in an overall analysis of the labor market.
At EPB Research, we use a “Coincident Employment Index,” which aggregates a composite of five critical labor market measures, including nonfarm payrolls, the household employment level, and the unemployment rate, to arrive at a comprehensive and unbiased reading of the labor market situation.
After the June Employment Situation report, the EPB Coincident Employment Index declined to a growth rate of 0.2%, the lowest of this economic cycle.
Further, the Coincident Employment Index has never registered a sustained negative reading without the economy being in a recession since contractions in the labor market and recessions are virtually synonymous.
This chart was featured in the EPB Weekly Economic Briefing, Week 27.
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I have to ask has the Fed not developed any forecasting models? And also given the consistent downward revisions in employment has the BLS considered that maybe their modeling needs revision?