Fed’s LMCI pauses in September as labor market improvement moderates

The Federal Reserve's Labor Market Conditions Index (LMCI) was unchanged in September, suggesting US labor market improvement slowed to a halt last month. This morning's release incorporates data from last Friday's September employment report that showed a slower-than-expected pace of payroll growth alongside downward revisions to the prior two months. Revisions to the LMCI mirrored that report, with readings for the prior three months revised lower by a net 1.7 points and Q2 readings revised higher by a net 0.5pp. The Q3 average change in the LCMI shows the pace of labor market improvement was nearly unchanged from Q2 (0.9 points/month) to Q3 (0.8 points/month) of this year.

The Fed's measure has made up 89% of the 2008-09 deterioration in labor market conditions as of September; the index has now risen a cumulative 330 points through the expansion, versus a 370-point contraction from January 2008 through June 2009.

"We see the downward trend in the labor force participation rate as primarily a demographic phenomenon, and as a result, believe the U3 unemployment rate accurately reflects the state of labor market slack", says Barclays