Employment Trends Index Rises 5th Straight Month – Update
The Conference Board Employment Trends Index rose 1% [pdf] in January 2010, from 92.3 to 93.2. This marks the fifth straight month the Employment Trends Index has risen, signifying job growth.
The Employment Trends Index, which is down 0.7% from January 2009, declined every month between January 2008 and April 2009. It then remained essentially flat from May – August 2009 after 20 straight months of decline. Since September 2009, when the Employment Trends Index rose 0.3%, from 88.2 to 88.5, it has climbed another 5.3%. A score of 100 equals the Employment Trends Index’s level in 1996.
Employment Trends Index Follows Same Trend as Unemployment Rate
In recent months, the Employment Trends Index has mostly run counter to the official U.S. unemployment rate, which broke double digits in October 2009, signifying fewer available jobs. However, the unemployment rate dropped to 9.7% last month, returning to a high single-digit reading after three straight months at 10% or more and indicating a slight improvement in the job market.
However, looking beyond the official unemployment rate of 9.7%, 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, marginally rose from 64.6% to 64.7%. This figure stood at 66% in December 2007, the month most economists say the current recession began. The employment-population ratio, which measures the ratio of employed persons to the total non-institutionalized civilian population age 16 and older, also slightly improved from 58.2% to 58.4, and stood at 62.7% in December 2007.
A Closer Look Shows Widespread Improvement
January’s rise in the Employment Trends Index was driven by positive contributions from six of its eight components: percentage of respondents who say they find “jobs hard to get,” number of temporary employees, part-time workers for economic reasons, job openings, industrial production, and real manufacturing and trade sales.
“In particular, (the) large decline in the number of involuntary part-time workers was the first time this component showed a strong signal of improvement,” said Gad Levanon, associate director of macroeconomic research at The Conference Board.
Economists Predict Slow Turnaround
At least one other privately produced study of U.S. employment trends predicts that the U.S. economy should slowly start adding more jobs next year. According to the November 2009 Outlook from the National Association of Business Economists (NABE), the official U.S. unemployment rate should peak in Q1 2010. However, beginning in Q2 2010, the NABE study predicts U.S. employers will begin adding jobs, which will ease the U.S. unemployment rate.
Although economists surveyed by NABE predict U.S. employers will begin hiring next year, they do not foresee an immediate turnaround. Sixty-one percent predict unemployment will not return to pre-recession levels until 2012, and the consensus is that unemployment will remain above 9% throughout 2010.
Employment Trends Index Aggregated Indicators
The Employment Trends Index consists of eight aggregated labor market indicators:
- 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.