What Is the Employment Trends Index?

The Employment Trends Index (ETI) is a composite economic indicator developed by The Conference Board to provide a forward-looking perspective on employment conditions in the United States. The index aggregates multiple labor market indicators into a single, standardized measure to forecast short-term changes in employment. It is designed to help economists, policymakers, and business leaders interpret labor market dynamics and anticipate turning points in employment growth or decline.

Unlike lagging indicators such as the unemployment rate, the ETI incorporates a mix of leading and coincident data series. This allows it to function as a predictive tool, offering early signals about the direction of the labor market before such trends become evident in headline employment reports. The index is updated monthly and reflects the most recent labor market data available at the time of its release.

Purpose and Use

The primary function of the ETI is to enhance the analysis of labor market conditions by providing a summary view of multiple employment-related data series. It is particularly useful in identifying inflection points—such as transitions from job growth to job contraction or vice versa. Economists and business planners use the index to gauge whether labor market conditions are strengthening or weakening, which can inform decisions related to hiring, investment, or risk assessment.

For policymakers, especially those involved in monetary and fiscal policy, the ETI can support evaluations of how employment trends align with broader economic goals, including full employment and inflation control. It is also used in macroeconomic research and forecasting.

Components of the ETI

The ETI is composed of eight labor market indicators that are selected for their ability to signal future movements in employment. These components are drawn from a variety of sources, including government agencies and private data providers. As of the most recent methodology, the components include:

1. Initial Claims for Unemployment Insurance (inverted)
2. Percentage of Respondents Who Say Jobs Are Hard to Get (from the Conference Board Consumer Confidence Survey)
3. Number of Employees Hired by the Temporary-Help Industry
4. Part-Time Workers for Economic Reasons (inverted)
5. Job Openings (from the Job Openings and Labor Turnover Survey, or JOLTS)
6. Industrial Production
7. Real Manufacturing and Trade Sales
8. Percentage of Firms with Positions Not Able to Fill Right Now (from the NFIB Small Business Survey)

Each component is seasonally adjusted, and the composite index is constructed using a dynamic factor model, which weights the components according to their ability to forecast total employment.

Interpretation

Movements in the ETI are interpreted in terms of the strength or weakness of job growth. A rising ETI suggests improving employment conditions and likely increases in payrolls, while a declining index may signal labor market softening. However, short-term fluctuations should be interpreted cautiously, as the index is subject to revisions and influenced by temporary shocks.

The ETI is most valuable when viewed in context with other economic indicators, such as GDP growth, consumer spending, and inflation. A sustained increase in the index over several months can indicate a robust labor market recovery, while a consistent downward trend may serve as an early warning sign of potential job losses or economic slowdown.

Historical Relevance

The ETI has shown utility during major economic turning points. For example, during the 2007–2009 financial crisis, the index provided early warnings of the deterioration in employment conditions. Similarly, in the early months of the COVID-19 pandemic, the ETI reflected the unprecedented decline in labor demand and hiring. During recovery periods, the index helped identify when businesses began rehiring and labor demand began to rise.

Because it consolidates multiple labor-related metrics, the ETI avoids the risk of relying too heavily on a single data point, such as the monthly nonfarm payrolls number or the unemployment rate. This composite approach provides a more comprehensive view of the labor market’s trajectory.

Limitations

While the ETI is a useful tool, it has limitations. The index is only as current and accurate as its underlying data components. Revisions to source data can affect historical readings of the index. Additionally, certain labor market disruptions—such as those caused by pandemics or natural disasters—may distort specific components, potentially reducing the index’s reliability in the short term.

Another consideration is that while the ETI attempts to forecast employment conditions, it is not a definitive predictor of payroll changes or jobless claims. Rather, it should be used in conjunction with other economic data and professional judgment.

The Bottom Line

The Employment Trends Index (ETI) serves as an important composite indicator designed to forecast employment conditions in the United States. By synthesizing data from multiple labor market sources, the ETI offers insights into the direction and momentum of job growth or decline. It is a valuable tool for economists, business leaders, and policymakers who need to monitor labor trends and anticipate changes in the broader economy. However, like all indicators, its insights are most reliable when used as part of a broader analytical framework.