Evaluating the impact of the labor market conditions index on labor market forecasts
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Laura Connolly
Abstract
This paper examines the usefulness of the labor market conditions index (LMCI) in forecasting key labor market variables, particularly unemployment rates. Using a number of models, we compare out-of-sample forecasts of the unemployment rate with the LMCI to those without the LMCI. We also estimate models of the disaggregated unemployment rates by gender, race, and race by gender, with and without the LMCI, to identify disparities in the predictive power of the LMCI for different subgroups. Last, to determine how the LMCI performs in the presence of labor market shocks, we compare the forecasting performance of the LMCI during recessionary periods and expansionary periods. Our results confirm the potential usefulness of the LMCI as a parsimonious forecasting tool; we find that the LMCI generally improves unemployment forecasts. But, disparities exist in the predictive power of the index across subpopulations and the index forecasts slightly better during recessionary periods than expansionary periods.
Appendix
Results of specification testing.
| Univariate | Bivariate | |||
|---|---|---|---|---|
| Series | DFGLS test statistic | DF test statistic | Tsay statistic | Tsay statistic |
| Total unemployment | −1.95 | −2.83 | 3.25*** | 2.34** |
| Female unemployment | 0.11 | −2.91 | 1.21 | 0.65 |
| Male unemployment | −2.97** | −3.03 | 3.27** | 19.53*** |
| White unemployment | −1.54 | −3.12 | 2.48** | 0.59 |
| White female unemployment | −0.82 | −0.90 | 1.50 | 1.05 |
| White male unemployment | −0.88 | −0.80 | 3.51*** | 2.00* |
| Black unemployment | −2.70** | −2.69 | 1.10 | 0.20 |
| Black female unemployment | −0.29 | −2.90 | 1.15 | 0.50 |
| Black male unemployment | −0.20 | −1.81 | 3.68** | 1.61* |
| Hispanic unemployment | 0.12 | −2.43 | 2.09* | 1.78* |
| Hispanic female unemployment | −1.79 | −1.95 | 1.49 | 0.72 |
| Hispanic male unemployment | −0.51 | −1.51 | 0.27 | 0.85 |
*p < 0.10, **p < 0.05, ***p < 0.01
DF GLS Test represents the t-statistic for the DF-GLS unit root test of Elliott, Rothenberg, and Stock (1996), DF Test represents the t-statistic for the Dickey-Fuller unit root test, and the Tsay test statistic is the F-statistic for the Tsay (1989) arranged autoregression test for threshold behavior.
Labor force characteristics by race, ethnicity, and gender, annual averages 2015.
| 2015 | Civilian population | Civilian labor force | Percent of labor rate | Labor force participation | Unemployment rate |
|---|---|---|---|---|---|
| Total | 250,801 | 157,130 | 100.0 | 62.7 | 5.3 |
| Male | 121,101 | 83,620 | 53.2 | 69.1 | 5.4 |
| Female | 129,700 | 73,510 | 46.8 | 56.7 | 5.2 |
| White | 196,868 | 123,607 | 78.7 | 62.8 | 4.6 |
| Male | 96,147 | 67,018 | 42.7 | 69.7 | 4.7 |
| Female | 100,720 | 56,589 | 36.0 | 36.0 | 4.5 |
| Black | 31,386 | 19,318 | 12.3 | 61.5 | 9.6 |
| Male | 14,268 | 9,099 | 5.8 | 63.8 | 10.3 |
| Female | 17,118 | 10,218 | 6.5 | 59.7 | 8.9 |
| Hispanic | 39,617 | 26,126 | 16.6 | 61.6 | 6.6 |
| Male | 19,745 | 15,054 | 9.6 | 76.2 | 6.3 |
| Female | 19,872 | 11,072 | 7.0 | 55.7 | 7.1 |
Source: Current Population Survey, U.S. Bureau of Labor Statistics, 2015 annual averages
Numbers are in thousands for civilian population and civilian labor force.
Cross correlations of the change in the LMCI and the unemployment rate.
| Series | Unemployment rate | First-difference |
|---|---|---|
| −12 | −0.36 | −0.09 |
| −11 | −0.35 | −0.15 |
| −10 | −0.34 | −0.18 |
| −9 | −0.32 | −0.22 |
| −8 | −0.29 | −0.26 |
| −7 | −0.26 | −0.29 |
| −6 | −0.23 | −0.32 |
| −5 | −0.20 | −0.34 |
| −4 | −0.16 | −0.39 |
| −3 | −0.12 | −0.43 |
| −2 | −0.07 | −0.49 |
| −1 | −0.01 | −0.56 |
| 0 | 0.05 | −0.58 |
| +1 | 0.11 | −0.49 |
| +2 | 0.16 | −0.44 |
| +3 | 0.21 | −0.36 |
| +4 | 0.25 | −0.28 |
| +5 | 0.28 | −0.21 |
| +6 | 0.30 | −0.17 |
| +7 | 0.32 | −0.15 |
| +8 | 0.33 | −0.15 |
| +9 | 0.34 | −0.12 |
| +10 | 0.35 | −0.07 |
| +11 | 0.36 | −0.03 |
| +12 | 0.36 | 0.01 |
Month-to-month changes (up to ±12 months) of the change in the LMCI and the unemployment rate and the first-difference of the unemployment rate.
Cross correlations between the change in the LMCI and the core consumer price index.
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Supplemental Material
The online version of this article offers supplementary material (DOI: https://doi.org/10.1515/snde-2016-0102).
©2018 Walter de Gruyter GmbH, Berlin/Boston
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Articles in the same Issue
- Introduction: Special Issue Honoring the Contributions of Walter Enders
- Improving likelihood-ratio-based confidence intervals for threshold parameters in finite samples
- Nonlinear Taylor rules: evidence from a large dataset
- Flexible Fourier form for volatility breaks
- Nonlinear evidence on the existence of jobless recoveries
- Public debt and economic growth conundrum: nonlinearity and inter-temporal relationship
- Examining the success of the central banks in inflation targeting countries: the dynamics of the inflation gap and institutional characteristics
- Evaluating the impact of the labor market conditions index on labor market forecasts
- Time-varying correlations and Sharpe ratios during quantitative easing
- Testing for a unit root against ESTAR stationarity
