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Understanding the Decline in the Employment Trends Index

In June, the Conference Board Employment Trends Index (ETI) saw a decrease, marking a second consecutive month of decline. Falling from an upwardly revised value of 106.90 in May to 106.69, this dip raises concerns regarding future employment growth. The ETI serves as a composite index that predicts the trends in payroll employment, suggesting that when the Index rises, employment growth typically follows and vice versa.

Implications of the Decline

Economic Research Associate Jannik Schulz from the Conference Board elaborated on the significance of this decrease. He pointed out that the continuous decline may indicate a slowdown in payroll growth. This observation correlates with recent data, which showcase a resilient labor market. Employers have been cautious about new hires and make few separations, leading to fewer workers leaving their jobs voluntarily.

Furthermore, the percentage of consumers who reported that jobs are hard to come by has surged to 22.5%—the highest rate since January 2021. In addition, initial claims for unemployment insurance rose for the second month in a row, reaching 222,000 in June, the largest average recorded for the year thus far.

Factors Contributing to the Current ETI

The reduction in the ETI can be attributed to several factors impacting employment perceptions. Consumers’ bleak outlook on hiring has primarily driven June's ETI weakness. This situation reflects the ongoing labor market environment characterized by a low-hiring, low-firing trend. However, despite these declines in the ETI, non-farm payrolls remain elevated and have experienced increases in recent months. Initial jobless claims, while rising in June, are still near historical lows, although the ETI interprets this increase as a concerning sign for the labor market going forward.

Notably, one positive aspect emerged from the ETI analysis. The share of small businesses reporting that they cannot fill positions jumped to 32% in June, representing an increase from May’s 29%. This contradiction offers a glimpse of the complexity within the current labor market, where job openings are plentiful, but the right candidates remain scarce.

Involuntary part-time work also saw a slight decline, with the percentage of workers in this category falling to 17.1%, down from 17.4% the previous month. Temporary employment opportunities experienced a boost, with an upward growth of nearly 47,800 positions noted during the first half of the year.

The Components of the ETI

The Employment Trends Index is made up of eight critical indicators, which collectively assess various aspects of the labor market. These include:

• - Percentage of respondents finding jobs hard to get
• - Initial claims for unemployment insurance
• - Percentage of firms unable to fill current job positions
• - Number of employees hired in the temporary-help industry
• - Ratio of involuntary part-time workers to all part-time workers
• - Job openings
• - Industrial production
• - Real manufacturing and trade sales

Out of these indicators, three contributed negatively to the ETI's recent downturn, predominantly driven by the increased difficulty in job acquisition, rising unemployment claims, and real manufacturing and trade sales. Conversely, the percentage of firms experiencing difficulty in filling vacancies, the ratio of involuntary part-time workers, and the number of hires in temporary services positively impacted the index.

Conclusion

The Conference Board's Employment Trends Index serves as a vital gauge for understanding the trajectory of employment rates. As we analyze the recent downturn and the contributing factors, it’s essential for stakeholders to remain aware of the potential for slower payroll growth in the months to come. The ETI's data and indicators offer crucial insights into the intricate dynamics of today’s labor market, emphasizing the importance of strategic hiring practices and ongoing assessment of market conditions.

For further insights and updates, check the Conference Board's monthly ETI release, which occurs on the Monday following each Employment Situation report by the Bureau of Labor Statistics.