Standard measures of the U.S. labor market look pretty good. The
unemployment rate is low, and job growth has been steady. But one
indicator is flashing signs of fragility.
It's an important one, too: The Federal Reserve's Labor Market
Conditions Index. After falling just three times from 2012 to 2015, the
index has fallen every month of 2016 except for one, July. And in July
the annual change in the LMCI, from July 2015, turned negative.
That's only the eighth time in nearly 40 years the index was down on
a year-over-year basis, Deutsche Bank Chief U.S. Economist Joseph
LaVorgna wrote in a note to clients today. Of the seven previous
occasions, LaVorgna wrote, "four were soon followed by recession."
(In the three other cases, two were false alarms, in 1986-87 and
1995-96, and in 1981 the recession began shortly before the annual
change in the LMCI turned negative.)
LaVorgna said the weakness in the LMCI indicates a rising
possibility of recession.
"The upshot is that the economic outlook remains fragile despite
the ostensible robustness of the labor market," he wrote.
In September the index fell 2.2 points. The October reading will
be released Nov. 7, one day before the election.
The Labor Market Conditions Index is made up of 19 indicators,
including the unemployment rate, average hourly earnings, the
labor-force participation rate, and less-followed measures such as a
help-wanted index, temp jobs, and the length of the average
workweek.
© Copyright 2016 Bloomberg News. All rights reserved.