Overview

Labor market indicators are statistics that offer insights into labor markets. They tell us how many
people are working or unemployed, how many potential workers there are, how much workers are
working, and they provide information about the cost of labor. Labor market indicators are widely
followed by financial market participants and unexpected changes in key labor indicators may have a
significant impact on markets.

Labor Market Indicators & Business Cycles Economies do not grow at a smooth rate. They rise and fall,
moving through periods of expansion and recession known as business cycles. Business cycles have a
significant impact on markets. Therefore, it is important to understand and anticipate changes in the
business cycle. Certain labor market metrics are regarded as leading indicators of changes in the
business cycle, while others are seen as coincident indicators or lagging indicators.

Unemployment Rate The unemployment rate is the most well-known labor market indicator. It is
calculated by dividing the number of unemployed persons by the labor force and multiplying the result
by 100 to obtain a percentage. Changes in the unemployment rate are closely related to the business
cycle. When the economy is expanding, companies need additional workers to produce more products
and services. They therefore hire more workers, thereby reducing the number of unemployed persons
and consequently, the unemployment rate. Conversely, when the economy is contracting during a
recession, companies tend to cut jobs, raising the unemployment rate. The unemployment rate is
sometimes regarded as a lagging indicator. Lagging indicators are used to confirm or refute inferences
drawn from leading and coincident indicators and seldom have the power to move markets alone. They
generally react more slowly to economic changes, and therefore have little predictive value.