The United States is the world's largest consumer market, and employment is the cornerstone of consumer spending. Breaking down the household disposable income of America, you will notice that over 70% comes from salary. As a result, the monthly employment report published by the U.S. Bureau of Labor Statistics at the beginning of each month is imperative for all investors.

This article will introduce two indicators in the report, which are the non-farm payrolls and the unemployment rate, as well as two indicators derived from them: the non-farm payrolls diffusion index and Sahm Recession Indicator.

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Non-Farm Payrolls

The non-farm payrolls is used to observe short-term employment momentum regarding wage growth. Under favorable conditions, the monthly increase in non-farm payrolls typically remains at a steady level of 150,000 to 200,000 people. We also recommend investors keep an eye on the Non-Farm Employment Diffusion Index compiled by the U.S. Bureau of Labor Statistics, which helps assess whether employment growth is driven by specific industries.

Advanced Indicator: Non-Farm Employment Diffusion Index

With a benchmark of 50, values above it indicate that more industries are contributing to employment growth than those experiencing employment decline, while values below 50 suggest the opposite. When monthly non-farm data consistently falls below 150,000 to 200,000 people, and the diffusion index drops below 50 for several months, it may indicate a weakening consumer momentum.

Unemployment Rate

The unemployment rate is used to observe long-term employment market trends. The unemployment rate usually continues to decline in the long term. When the unemployment rate significantly rises, it often indicates that the economic cycle has reached the mid-to-late stage, and it is considered a lagging indicator.

Advanced Indicator: Sahm Rule Recession Indicator We suggest monitoring Sahm Rule Recession Indicator along with the unemployment rate, for it’s a more leading indicator. The Sahm indicator is calculated by subtracting the 3-month moving average of the unemployment rate from the previous year's low point in the unemployment rate. When its value exceeds 0.5%, it signifies that the economy is in a recession phase. Historical data shows that this condition has consistently coincided with previous recession phases. When used in conjunction with the unemployment rate, it offers a better understanding of the current economic situation.

Wrap-Up

Lastly, we wanna give you quick wrap-up for October’s job report. US Non-farm payrolls added 150,000 jobs the unemployment rate edged up slightly to 3.9% (from 3.8%), the Non-Farm Payroll Diffusion Index remains healthy at 60.6, and the Sahm Rule Recession Indicator is at 0.3%, below the 0.5% recession threshold. Overall, the October data indicates a more modest expansion in the U.S. job market.

All of the above data will be promptly updated on the MacroMicro website. Visit our website for more information.

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