Retailer Daily

ETI Signals Weak Recovery, if Any

After three straight months of basically flat performance gave hope that the recession was near or at rock bottom, the Conference Board Employment Trends Index (ETI) dropped from a revised July 2009 reading of 88.2 to 88.1 [pdf] in August. The Index is down 18.5% from its August 2008 reading of 109.3, and this latest slight monthly decline suggests no job growth will happen until at least the end of this year and dulls overall recovery expectations. “The fact that the index cannot get off the ground is another sign of a weak recovery, perhaps a jobless one,” said Gad Levanon, senior economist at The Conference Board. Last week’s August 2009 unemployment figures released by the Bureau of Labor Statistics offer even less hope of any significant improvement to a woeful U.S. job market anytime soon. The official unemployment figure, which represents unemployed persons actively looking for work, rose from 9.4% to 9.7%. During the month, total nonfarm payroll employment fell by 216,000, and the total number of unemployed persons rose from about 14.43 million to 14.9 million. However, a look beyond these numbers shows that in actuality, many more Americans are unable to find work than those counted in the official unemployment figure. The civilian labor force participation rate, which is the proportion of the non-institutionalized civilian population age 16 and older serving in the labor force, remained flat at 65.5%. The employment-population ratio, which measures the ratio of employed persons to the total non-institutionalized civilian population age 16 and older, dropped from 59.4% to 59.2%. Outside of job data, other economic indicators also provide a stagnant to negative picture of the health of the U.S. consumer. For example, in July 2009, U.S. consumers increased personal income by less than 0.1%, while decreasing disposable personal income less than 0.1% and increasing spending by 0.2%. Standing out against these fractional changes was a significant 5.6% dip in personal saving that could indicate increased willingness to spend money. However, retail sales decreased 0.1% in July 2009. U.S. consumer credit and borrowing rates decreased in July 2009, extending a troubling trend suggesting that credit card companies and banks are making it even harder for consumers to get the kind of financing that fueled so much of the economic boom earlier this decade. In additional negative government data releases, the U.S. trade deficit rose 4% in June 2009, and the GDP (Gross Domestic Product) shrank 1.2% in Q2 2009. Some private data indexes also cast a negative light on overall consumer health. The RPI (Restaurant Performance Index) rose 0.3 percentage points in July 2009, but still remained below 100, indicating contraction in key industry indicators. And the new Consumer Reports Index indicated lower levels of financial security and spending and higher levels of stress and unemployment among U.S. consumers in August 2009. However, in one bright spot, the August Consumer Confidence Index, also released by the Conference Board, regained some lost ground after dropping for two straight months, driven primarily by gains in the forward-looking Expectations Index. Of the eight aggregated labor market indicators that constitute the ETI, four improved in August: percentage of respondents who say they find “jobs hard to get,” percentage of firms with positions not able to fill right now, industrial production, and real manufacturing and trade sales. A list of all eight indicators follows:

• 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)
• 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)

The aggregation of these eight components into the Employment Trends Index (ETI) is constructed so that all components are equally weighted and volatility adjusted so that no single component can dominate the index. The volatility adjustment is done by calculating standardization factors determined by the standard deviation of the monthly percent change in each component. The period used for calculating the standardization factors begins in 1973 and ends at 2007. The standardization factors are then used to construct the index from 1973 to 2008. According to the Conference Board, the ETI typically leads unemployment figures by two months.