Some of the most widely followed measures of U.S. employment, such as jobless claims and payrolls, can be particularly volatile from one month to the next. Some of the volatility is due to seasonal effects and can be smoothed out through seasonal adjustments. However, these adjustments require one to make assumptions that can be somewhat arbitrary and are therefore often the subject of criticism. Throw into the mix the fact that we’re less than a month away from the presidential election and things can really get confusing.
While I like to think that the U.S. Bureau of Labor Statistics isn’t just “cooking” the numbers, it’s generally unwise to pay too much attention to any one given number, and is better to observe the overall trend in a relevant set of indicators. To help us with this task, we’ve developed what we call the “Pinnacle Employment Model,” a composite of ten measures of U.S. employment going back to 1968. In addition, we use a scorecard to keep track of the trends in another dozen indicators that have become available more recently and were not included in the actual model.
After peaking in the winter, the model has suffered a steady decline for several months before stabilizing just above the zero line in September. While this by no means portrays a rosy outlook for the U.S. job market, the current reading is consistent with an average growth in nonfarm payrolls of 1.35% year-over-year, which roughly translates into 150,000 additional jobs per month. Again, not a stellar number and probably not enough to push the unemployment rate significantly lower without having more people leave the labor force, but it could be enough to support a non-recessionary, slow growth scenario. As a matter of fact, model readings of -1 and below have historically been consistent with recessionary periods, and we would need to see a significant deterioration in the model before getting there.