FX.co ★ CB Employment Trends Index Signals Slowdown In Payroll Additions

A key indicator for payroll employment in the U.S. declined in June, continuing its downward trend from recent months and suggesting a slowdown in payroll hiring for the latter half of the year, according to the Conference Board's survey data released on Monday.

The Conference Board Employment Trends Index (ETI) dropped to 110.27 in June, down from a revised 111.04 in May. The think tank explains that an increasing Index typically signals employment growth, while a decrease indicates a potential downturn. Turning points in the Index suggest that a shift in the trend of job gains or losses is imminent.

June's decline in the ETI was primarily influenced by negative contributions from four out of its eight components: the percentage of firms with unfilled positions, the number of employees hired by the temporary-help industry, initial claims for unemployment insurance, and job openings.

"The ETI fell in June, continuing the downward trajectory observed since its peak in March 2022," said Will Baltrus, Associate Economist at The Conference Board. "This downtick in the ETI signals that employment may decline in the second half of 2024." He added that, while the index remains above its pre-pandemic level, the pace of payroll growth has slowed compared to the substantial gains seen during the pandemic recovery.

"Although June's ETI suggests a potential reduction in employment, we expect the labor market to cool only modestly. As long as companies retain their workers, net nonfarm payrolls will likely remain positive," Baltrus noted.

The Conference Board's survey revealed that 37 percent of firms are currently struggling to fill positions, a figure significantly higher than the 23 percent average observed from July 2009 to January 2020, which was the period following the financial crisis and leading up to the pandemic. This elevated share is expected to persist as Baby Boomers retire, according to the Conference Board.

Furthermore, companies are reluctant to downsize their payrolls in a slowing economy because the economic weakness might be temporary. Rehiring workers after an economic downturn could prove costly due to ongoing labor shortages.