7 Ways to Diagnose the Health of the Labor Market

The elephant in the room during a typical diagnosis of the U.S. economy is the labor market. Unemployment has always been in the spotlight, but the headline rate has come under increased scrutiny in the wake of the decision by the U.S. Federal Reserve to explicitly link forward guidance for monetary policy to economic metrics.

While the headline rate paints a broad picture of the health of the labor market, there are alternative measures that investors should keep an eye on.

1) Initial claims for unemployment insurance

Every week, the U.S. Bureau of Labor Statistics releases a report on the number of people claiming unemployment insurance. This report can be used as a proxy for layoffs — generally speaking, a higher number of claims means a weaker economy.

The number of people filing for initial unemployment claims declined 5,000 to a seasonally-adjusted 343,000, according to the most recent report. The four-week moving average, a more stable indicator for claims, declined 750 to 345,500. At this level, unemployment insurance claims are approaching, but have not quite reached, pre-crisis levels.

LMR Initial Claims Unemployment

Source: Data from the U.S. Bureau of Labor Statistics