CEOs a great predictor of employment.

The CEO Employment Index has continued to be a great predictor of employment in the United States. The graph below shows our confidence data shifted four months forward as compared to employment data released by the Bureau of Labor Statistics. What the graph and data say is that what CEOs feel about employment will more or less be realized in employment data four months later.

The relationship or correlation between this time-lagged data is quite impressive. For the statisticians out there, the correlation between CEO Employment Confidence and employment data 4 months in the future is .88 (a correlation of +1 is a perfect track, 0 is no relationship at all, and -1 is a complete inverse relationship). In statistical terms, that means that these data series are highly associated.

Looking at the last 4 months of employment confidence, we can form some pretty accurate predictions about what the hiring picture for the economy will be in in the coming months. As the graph and data indicate, we expect unemployment to hover between 5.2-5.4% over the next few months. It is highly unlikely that the economy will see any substantial declines in unemployment from January 2005's 5.2%.

Additionally, from a macroeconomic perspective, we should be satisfied with current levels of unemployment. Economists like Greg Mankiw believe that there are levels of natural unemployment. In the U.S., economists have determined this rate to be 5.5%. Any deviations from this amount are considered cyclical unemployment. Current unemployment rates suggest we are somewhat below this level and therefore should not be surprised to see unemployment rise slightly.

Another key difference to note is that despite these realities, hiring can still increase, wages can still rise, and labor as an input to productivity can become more important. CEOs are still bullish about hiring, 52.5% of them expect to increase employment, while only 7.7% expect to decrease it.

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Finally, we at the CEO Confidence Index would like to raise an issue of concern as it regards to the media's presentation of hiring and society's opinions regarding efficient labor sourcing. Headlines are abound about rising or falling unemployment rates, and more people are filing for unemployment insurance or being hired. From a wealth perspective, the U.S. should be concerned about labor productivity and real wages. Efficient markets find equilibriums--people who want to work can, they just need to accept lower wages if they are fifth on the line. Hiring data is more reflective of how efficient and free our markets are, not how productive or wealthy our society is; recall that Stalinist Russia had complete employment. We should start paying more attention to wages and subsequently education. When faced with labor forces across the pacific willing to work for one tenth to one-hundredth the cost of an American worker, we should not focus on trying to write the rules so that they can't play in our yard and we won't play in theirs. Instead we should focus on the real driver of wages, productivity, and wealth-knowledge.

RELATED ARTICLE: The Quotable CEO on CEO Confidence

"Uncertainty is the spice of business!"
Charles S. Thomas, Managing Director, CACH International

"Anyone who wants a job and is willing to go the distance can find one
relatively easily."
Kieth E. Johnson, CEO, CPA Firm

"Economic leadership is absent. US Government controls are excessive.
There is little risk taking in progress. Technology is stagnant."
Anonymous

"The only reservation that I have of expanding my business is the lack
of qualified workers coupled with the fear of ever increasing punitive
governmental regulations."
Kris M. Meyer, President, Ledesma & Meyer Construction Company, Inc.

"If unchecked, the growing national debt along with the expanding trade
imbalance will lead to an economic crisis of major proportions."
Anonymous

"The economy is doing better than last year, but that's doing 'better
than bad,' and that cannot be rated 'good.'"
Gunther Karger, President, Discovery Group Inc.

"The past 3-4 years have weeded out the faux companies."
Anonymous