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Thursday, March 31, 2011

Gallup’s Job Creation Index Fell Last Week

During the week ending March 27, Gallup’s Job Creation Index (JCI) fell sharply returning to a score of 10 -- the same as it was for most of January. Over the prior two weeks, the JCI had been at multi-year high points of 13 and 14. While this could be a one-week break in the trend, it seems more likely to be the result of growing global and domestic economic uncertainties -- particularly given that the JCI is below its 2011 weekly low of 10 in Gallup’s most recent three-day surveys.

The JCI is constructed using employee reports of whether their companies are hiring or firing. Last week, 30% reported that their companies were hiring and 20% letting people go -- the difference providing a JCI score of 10. This decline came on both sides of the measure as the percentage hiring fell from 32%, while firing increased from 18% during the prior week.

In the past, Gallup’s JCI has been generally predictive of jobless claims -- particularly the four weekly moving averages. While they are inversely related, both the government’s weekly jobless claims report and Gallup’s JCI have improved during 2011 as the percentage of companies letting employees go has declined and hiring has improved on the margin. This past week the government’s jobless claims increased as expected given the decline in Gallup's JCI.

More importantly, the tumbling JCI may signal that America’s businesses -- like the American consumer -- are losing their early 2011 optimism and pulling back in their hiring efforts, at least in the immediate future. While this change in trend is too recent to be picked up in government’s March jobs report, it does suggest another reason for caution when interpreting both the ADP’s 201,000 private sector job growth report, as well as the job growth reported by the government on Friday -- they may already be out of date.


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