What is the Labor Market Conditions Index?

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Labor Market Conditions Index

  • September LMCI rose 2.5 points in September.

Takeaway

There was a lot of talk about this number last week, as it is a new publicly published, comprehensive labor market index the Fed used to use internally (it’s been around since the 1970s). It’s comprised of 19 different labor market indicators (all of which are public). Basically, this is the Fed’s employment indicator “dashboard” and as such it’s something we all need to follow.

Much was made last week about the fact that the index rose just 2.5 points compared to an average of 4.9 points each month for the first 6 months of 2014. As a result this was construed as “dovish” and was partly responsible for the big sell-off we saw in the Dollar Index.

It’s odd, then, that virtually every major job indicator in September was good, yet the LMCI was “soft.” And, that likely had to do with the fact that the LMCI probably puts a lot of weight on hours worked, changes in the participation rate, or wages themselves (all of which were subdued in the jobs report Friday).

Given the release contains just the monthly change and not an absolute level, it’s hard to get too much of a gauge on how important this report really is from a Fed standpoint, and frankly I’m thinking not that important. For instance, the absolute level of this index could be at multi-year highs, and as such the incremental monthly 2.5-point disappointment really isn’t that big a deal (because the absolute level is good). Point being, a 2.5 point increase if the absolute level were at 100 (which could be a 6 year high) is a lot less disappointing than a 2.5 point gain when the absolute level is at 40 (a multi-year low). I’m guessing it’s more towards the later.

Regardless, while it was taken as “dovish” yesterday and helped the dollar to sell off and bonds to rally, I don’t think it negates the strong September jobs report and really isn’t that dovish in a fundamental sense (and definitely won’t change any Fed policy decisions).

But, it’s a new monthly number we all need to watch—so going forward we’ll be keeping an eye on it.