Employment Trends

November 2016

On November 4, 2016 the Bureau of Labor Statistics (BLS) released the

employment data for October 2016. Economists rely heavily on this
data to help gauge the health of the economy. Investors believe the
data provides valuable insight into the likelihood that the Federal
Reserve adjusts monetary policy in the near future.
Due to its importance, we put together a series of charts to serve as a
gauge of current employment conditions. Notice that many, but not all,
of the post 2008/09 employment trends have stopped improving.
While they are not necessarily reversing, consolidations in these trends
have led to reversals and in many instances, recessions in the past.

Unemployment Rate
The unemployment rate generally trends higher or lower with short consolidation periods between
trend changes. Weve marked these consolidation periods in red below. Reversals of downward
trends in the unemployment rate, followed soon thereafter by measurable increases in
unemployment, have always occurred prior to recessions. Recessionary periods are marked by gray
bars below.

Unemployment Rate
According to Jeffrey Gundlach of DoubleLine,
one should be on recession alert when the
unemployment rate crosses above its 12month moving average. That occurred in
September 2016.
Further, he believes the unemployment rate
crossing of the 36-month moving average to
be a more durable recession indicator.
Although this has yet to occur, a continued
uptick in the unemployment rate would
cause it to cross early next year.

The Labor Market Conditions Index (LMCI)

This Federal Reserve index, which was created by Janet Yellen, is an aggregation of 19 labor
indicators. The series has been declining since 2014. Recently it has fallen below zero, which portends
weakness in labor markets.

Average Duration of Unemployment

The average amount of time people are unemployed declines during periods of economic
growth. Cessation and reversal of this trend has been a reliable predictor of past recessions.

JOLTS Report
The JOLTS job openings report from the BLS has been a favorite Federal Reserve leading indicator for
the health of the employment market. Declines in job openings tend to portend increases in
unemployment. The year over year change has been trending lower and is approaching zero.
JOLT - Job Openings (yoy % change)
30%

25%

20%

15%

10%

5%

0%

2016-08

2016-07

2016-06

2016-05

2016-04

2016-03

2016-02

2016-01

2015-12

2015-11

2015-10

2015-09

2015-08

2015-07

2015-06

2015-05

2015-04

2015-03

2015-02

2015-01

NFIB Small Business Employment Survey

This diffusion index shows that the upward trend in the percentage of small businesses expecting to
increase hiring has stalled and may have begun to reverse. The survey is highly correlated to changes
in employment. Graph Courtesy Real Investment Advice Lance Roberts
25

6000

20

4000

15

2000

10

-2000

-4000

-5

-6000

-10
1986

BLS Annual Change In Employment

% Of Businesses Planning To Increase Employment

NFIB - % Planning To Increase Employment vs Annual Change In Employment

-8000
1988

1990

1992

1994

1996

1998

2000

2002

% Planning To Increase Employment

2004

2006

2008

2010

2012

2014

2016

Employment Annual Change

The Conference Board Help-Wanted Online Index

Since February, the year over year change of this index has dropped below zero. For the last 5 months it
has been 10% lower than at the same time last year.
Help Wanted Online Index (annual % change)
40%

30%

20%

10%

0%

-10%

-20%

-30%

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

Total Payrolls (annual % change)

The rate of change in payrolls tends to decline 1-3 years prior to recession. The current trend is
starting to drift lower from the post-GFC peak. An acceleration of the trend would heighten recession
concerns.

10

Jobless Claims
Despite all of the other data exhibiting potentially unfavorable trend changes in the labor market,
jobless claims continue to decline toward levels last seen in the 1970s. Jobless claims have been a
reliable leading indicator of employment trends in the past. The current trend shown below would
not seem to signify employment issues.

11

Wages and Hours Worked

Average hourly earnings continue to increase and, like jobless claims, represents healthy demand for
labor. Hours worked have stabilized, after rising since 2009, but has not yet begun to decline as is
typical preceding recessions.

12

C&I Delinquency Rates and Employment

The annual change in the delinquency rate on commercial and industrial corporate loans
(C&I) is inversely correlated with annual changes in employment. Over the last year
delinquency rates have spiked higher. Employment, shown inverted on the right axis, has yet
to follow suit. (employment = 100 less the % change in year over year employment - therefore total payrolls
would fall by approximately 3% if it responds to delinquency rates as it has in the past)

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Capacity Utilization and Unemployment

Capacity utilization, or the percentage of resources used to produce goods, and
employment are highly correlated. Recently, however, capacity utilization has declined yet
unemployment (shown inverted on the y-axis as 100% minus the unemployment rate), has
not followed.

14

NRA Restaurant Performance vs. Leisure Employment

The National Restaurant Association Performance Index measuring restaurant sales has declined to levels
seen only in the prior two recessions. If employment in the leisure and hospitality industry remains correlated
to the survey, approximately 225,000 jobs will be lost. As a point of reference, the entire economy has
recently only added approximately 150,000 jobs per month. Employment in leisure and hospitality represent
11% of total employment.

2.0%

108

1.5%

106

1.0%

104

0.5%

102

0.0%

100

-0.5%

98

-1.0%

96

-1.5%

94

-2.0%

92

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

6 Mos. Change Leisure/Hospitality

NRA Index

Employment Change

NRA Rest. Index vs Leisure Employment

NRA Restaurant Index

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S&P 500 and Unemployment

The trend of the unemployment rate and the S&P 500 are highly correlated. The right y-axis
scale for the unemployment rate is inverted to better highlight this relationship.

2,250

1,850

1,450

1,050

650

10

250

12

2016

2016

2015

2015

2014

2014

2013

2013

2012

2012

2011

2011

2010

2010

2009

2009

2008

2008

2007

2007

2006

2006

2005

2005

2004

2004

2003

2003

2002

2002

2001

2001

2000

2000

1999

1999

1998

1998

1997

1997

1996

1996

1995

1995

S&P 500

Unemployment rate inverted

S&P 500

S&P 500 and Unemployment Rate (inverted scale)

Unemployment Rate (RHS - inverted)

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