How’s the Labor Market Doing, Really?

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Last week produced a weak jobs report, and today Fed chair Janet Yellen implied that this made an interest rate hike unlikely in the next month or two. Fine. But that’s just one report over one month. Does it really tell us much about the health of the labor market?

Maybe not. Justin Fox suggests that “things have actually been on the downswing for the U.S. labor market for months,” based on his read of a newish composite measure from the Fed called the Labor Market Conditions Index. As you can see on the right, the LMCI has mostly shown positive growth over the past three years. In fact, it’s been positive since mid-2009. But growth turned negative in January and has been getting steadily more negative ever since. It’s currently at -4.8.

So that’s not so great. But because the LMCI is a composite mishmash of other metrics, it’s hard to have any kind of intuitive sense of what it means. Is -4.8 bad? Really bad? Just a blip?

One way to get a better sense of LMCI is to take a longer-term look at it. The Fed boffins have back-calculated it to 1976, so here it is for the past 40 years:

Ah. It’s one of those measures designed to predict recessions. As its creators say: “Changes in the LMCI align well with business cycles as defined by the National Bureau of Economic Research….[Since 1980] the LMCI has fallen about an average of 20 points per month during a recession and risen about 4 points per month during an expansion.”

These kinds of composite measures are a dime a dozen. Constructing them is practically a parlor game among a certain kind of economist. They’re also problematic. LMCI, for example, combines 19 separate measures, and with that many inputs it’s not hard at all to gin up a formula that will pretty accurately match past history. So I’d take LMCI with a grain of salt until we see how it does at predicting the next recession.

That said, if we do take LMCI seriously the question is: how low can it go before a recession is inevitable? Answer: Over the past 40 years, it’s never gotten below -10 without foreshadowing a recession. In fact, during normal periods of expansion, it’s never gotten below -7 without turning into a recession.

So: If we assume that LMCI has predictive capability, we can say that if it keeps dropping for another few months it probably means bad news. And if it drops into negative double digits, a recession is almost inevitable. That’s a lot of ifs and probablies, but possibly something to keep an eye on anyway.

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WHO DOESN’T LOVE A POSITIVE STORY—OR TWO?

“Great journalism really does make a difference in this world: it can even save kids.”

That’s what a civil rights lawyer wrote to Julia Lurie, the day after her major investigation into a psychiatric hospital chain that uses foster children as “cash cows” published, letting her know he was using her findings that same day in a hearing to keep a child out of one of the facilities we investigated.

That’s awesome. As is the fact that Julia, who spent a full year reporting this challenging story, promptly heard from a Senate committee that will use her work in their own investigation of Universal Health Services. There’s no doubt her revelations will continue to have a big impact in the months and years to come.

Like another story about Mother Jones’ real-world impact.

This one, a multiyear investigation, published in 2021, exposed conditions in sugar work camps in the Dominican Republic owned by Central Romana—the conglomerate behind brands like C&H and Domino, whose product ends up in our Hershey bars and other sweets. A year ago, the Biden administration banned sugar imports from Central Romana. And just recently, we learned of a previously undisclosed investigation from the Department of Homeland Security, looking into working conditions at Central Romana. How big of a deal is this?

“This could be the first time a corporation would be held criminally liable for forced labor in their own supply chains,” according to a retired special agent we talked to.

Wow.

And it is only because Mother Jones is funded primarily by donations from readers that we can mount ambitious, yearlong—or more—investigations like these two stories that are making waves.

About that: It’s unfathomably hard in the news business right now, and we came up about $28,000 short during our recent fall fundraising campaign. We simply have to make that up soon to avoid falling further behind than can be made up for, or needing to somehow trim $1 million from our budget, like happened last year.

If you can, please support the reporting you get from Mother Jones—that exists to make a difference, not a profit—with a donation of any amount today. We need more donations than normal to come in from this specific blurb to help close our funding gap before it gets any bigger.

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