Fed’s LMCI rises for second consecutive month in June

The Federal Reserve's Labor Market Conditions Index (LMCI) rose by 0.8 points in June, while the May increase was revised down to 0.9 from 1.3. This release, which includes data through last Thursday's June employment report, revised down Q2 monthly readings by a full 1.1 percentage points, while Q1 data were revised down by 0.3pp, notes Barclays.

This brought the cumulative gains for the index over the current economic expansion to 321 points, down from 322 points in the May LMCI release. The downward revisions to the Q1 data likely reflect the downward revisions to payroll data in the June report, which on net were -60k over the preceding two-month period. At the LMCI's average pace of expansion over the current cycle, the index is on track to reach pre-crisis levels in about 10 months. Overall, we continue to view US labor markets as on a solid footing and expect payroll growth to trend at 200-225k for the remainder of this year, estimates Barclays.

The LMCI uses a dynamic factor model of 19 labor market indicators to extract a single index variable, which is one of the metrics the FOMC uses to assess overall labor market conditions. The release data include only monthly changes in the index; thus, we use changes in the index over the business cycle to understand where labor markets stand, notes Barclays.