Gallup’s Job Creation Index
Gallup’s Job Creation Index is a measure of net hiring activity in the U.S., with the monthly average based on a nationally representative sample of more than 17,000 full-time and part-time workers, aged 18 and older, over the last month. Gallup asks its sample of employed Americans each day whether their companies are hiring new people and expanding the size of their workforces, maintaining the size of their workforces, or letting people go and reducing the size of their workforces.
The resulting index—computed by subtracting the percentage of employers letting people go from the percentage hiring—is a real-time indicator of the nation’s employment picture across all industry and business sectors.
For March, the index reached a six-year high of 23, nearly tying the 24 recorded in March 2008. The index for March is two points higher than it was in February, and it shows a six-point improvement from last March. March’s 23 index reading is based on 38% of U.S. workers saying their employer is hiring workers and expanding the size of their workforce and 15% saying their employer is letting workers go and reducing the size of their workforce. In March, 42% of workers said their employer isn’t changing the size of their workforce.
Last month, 34% of government workers reported that their employer was hiring workers and 21% said their employer was letting workers go. Meanwhile, 39% of non-government workers said their employer was hiring and 13% letting workers go.
The hiring and firing trends that are the basis for Gallup’s Job Creation Index provide key new insights into the potential future direction of job market conditions other than those available in some government indicators. For example, the government’s weekly new jobless claims measure only reflects workers filing for benefits, yet not everyone who’s laid off files for unemployment. The index may also detect hiring trends days or weeks before they manifest in the official unemployment rate or other lagging indicators. Gallup has tracked its job creation index daily since January 2008, when the index was 26.
U.S. workers in the private sector are reporting a more positive jobs situation at their workplaces than at any point during the past six years. Combine this with the year-over-year improvement from Federal workers, and March’s promising job creation index reading would appear to be a positive sign in the long recovery from the 2007–2009 economic recession.
The performances of popular exchange-traded funds (or ETFs) like the SPDR S&P 500 ETF (SPY), the iShares Core S&P 500 ETF (IVV), and the iShares S&P 100 ETF (OEF), which track large-cap equities of companies like Apple Inc. (AAPL) and Exxon Mobil Corp. (XOM), serve as a good indicator of the course the U.S. equity market is taking. Equity markets tend to rise when job creation is positive and economic conditions are improving. The opposite holds true when economic conditions are deteriorating.
The bond market rallies when the employment situation shows weakness, and it falls when economic conditions are improving. The stock market, on the other hand, rallies on strong employment data. The two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about potential inflationary pressures.
© 2013 Market Realist, Inc.
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