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The unemployment rate has been rising steadily for more than a year, and in September, it stood at 6.1 percent. The last time the unemployment rate rose above 6 percent was in 2003, in the aftermath of the 2001 recession. Nonagricultural employment fell by 159,000 in September 2008, bringing the decrease so far this year to 760,000, a level previously experienced only in recession years. In this unhappy employment picture, it is important to know whether the job losses are widespread or concentrated in only a few industries. Widespread job losses indicate that the economy is likely to be in a recession. The employment diffusion index addresses this issue. The news is not good.
The Bureau of Labor Statistics constructs the index for all private non-farm payrolls using data for 274 industries representing the entire U.S. economy. In September, the employment diffusion index fell to 38.1 from 44.7 the previous month. The value of the index below 50 indicates that more industries saw a decline in employment during the month of September than saw an increase. At 38.1, the value of the index implies that for every two industries that experienced an increase in employment, three industries reduced their employment. In August, when the index was at 44.7, the ratio between expanding and contracting industries was more balanced: For every nine industries with rising employment, there were eleven industries with falling employment. Generally, the employment diffusion index trends downward prior to a recession. As shown on the chart, where shaded areas represent recessions, the value of the index in September is very close to the value it had at the start of 2001 recession.
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