Labor Market Breakdown (Chart Of The Week)
Our featured chart from the EPB Weekly Economic Briefing / Week 28
Symptoms of tight monetary policy are always revealed through a weakening of the labor market.
Earlier signs do exist, but a broad loosening of labor market conditions is evidence that monetary policy is impacting economic activity.
The major coincident indicators of the labor market remain somewhat mixed but taken as a whole; they reveal a labor market that has been weakening and is now nearing contraction.
A broad and decisive contraction in the labor market would be a necessary criteria of recession.
The following chart shows six major coincident indicators of the labor market and compares today's level vs. 6M ago, 12M ago, and 18M ago.
Total nonfarm payrolls growth is decelerating, but remains at 1.7% before the benchmark revisions improve the accuracy of these figures.
The household employment level is contracting as of June, falling sharply from a 1.8% growth rate 12 months ago.
Aggregate weekly hours growth remains stable.
The 12 month average of non-seasonally adjusted jobless claims is trending higher, but at a very mild pace. The insured unemployment rate has moved higher from the cycle low-point but, similar to jobless claims, is relatively muted.
The U3 unemployment rate is trending higher at an accelerating pace.
All of these labor market measures are equally valid and provide critical insights about the health of the labor market.
Rather than picking which single indicator to use, taking the signal from the collective basket has proven far more reliable and far more timely as a broad and comprehensive view of the labor market.
The EPB Coicident Employment Index combines all these variables into one standardized index, making it easy to understand the labor market's collective health.
The EPB Coincident Employment Index slipped to a growth rate of just 0.2% after June's employment situation report, the lowest growth rate of this economic cycle and a fraction from a contractionary reading - a high conviction signal of recessionary conditions.
For now, the labor market is cooling, below trend, and nearly contracting. Further weakness in the variables mentioned would be needed to push the index into contraction.
The main question for the Business Cycle is whether or not the Fed's current rate-cutting path will be enough to arrest the developing trends in the labor market and prevent a broad-based contraction.
This chart and analysis were featured in the EPB Weekly Economic Briefing, Week 28.
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Excellent post.