Monday, February 09, 2015

LMCI Comes in Weak at 4.9

The Fed released the January Labor Market Conditions Index this morning.  The LMCI, as we discussed yesterday, is comprised of 19 separate economic indicators that provide insight into the health of the job market.  With Unemployment continuing to fall and with optimism in last month's non-farm payroll index, expectations were high that today's LMCI number would continue to show improvement.  In yesterday's post, I said that I was looking for a value of 6.8 or higher to demonstrate strength in the labor market.  Well, we fell far short of that value.

The LMCI for January dropped to 4.9, a decline of 1.2 points off December's 6.1 value.  That drop confirms what we've been saying for some time, that the labor market is not as healthy as the unemployment number would lead us to believe.  In fact, the decline in January confirms the falling Participation Rate which is now at its worst level since the late 1970s.

What the low values in the LMCI are telling us is that, despite a drop in the Unemployment Rate - which I've already categorized in previous posts as a meaningless number - the other aspects of the job market are in terrible shape.  Hours worked per week continue to drop.  Wages continue to drop and annual merit increases are barely keeping pace with inflation.  Benefits, especially health care benefits, continue to skyrocket in costs to the worker.  The number of workers that are leaving the workforce prior to age 65 continues to increase.

Now, it's doubtful that the LMCI is having much of an impact on today's market decline.  As of this writing, we're trading near the lows of the day, but the entire day has been down due almost entirely to the standoff between the Eurozone and Greece coupled with the extremely poor trade numbers released by China last night.  Those two global constraints are having a far greater impact than the little known LMCI is likely to cause.

What we as traders need to take from this, though, is the warning that the labor market is not at all healthy.  We need to keep a very close eye on Average Weekly Hours, Average Hourly Earnings, Hiring Rate and Quit Rate, and Hiring Plans.  These will give us a much clearer view as to the conditions of the average worker in the US.  I'm expecting all of them to continue to worsen in the short term.

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