Why we’re keeping an eye on the diffusion index – Marketplace

The Bureau of Labor Statistic’s monthly jobs report provides numbers that get a lot of attention, like the unemployment rate and the number of jobs added to the economy. But the report contains another useful measure worth keeping an eye on: the one-month diffusion index of private industries.

“The diffusion index is a really good indicator of how much job growth is going on,” said Martha Gimbel, executive director of the Budget Lab at Yale University. The index looks at the concentration of job growth in the economy; if it’s above 50, then more industries added jobs than lost them. If it’s under, then the opposite is true.

“When people hear news about the jobs report and think to themselves, ‘That doesn’t really reflect the experience in my industry,’ the declines in their industry would at least be recognized in the diffusion index,” said Celeste Carruthers, a labor economist at the University of Tennessee.

Since the COVID-19 pandemic shutdowns in 2020, the diffusion index has seen some wild swings. It hit 4 in April 2020, meaning virtually nobody was hiring. But that slowly changed, and the diffusion index hit a series high of 84 in February 2022.

“That’s indicating a very high percentage of industries were growing at the time,” Carruthers said. “And that’s consistent with a lot of other indicators that we had an exceptionally tight job market.”

At the time, there was a lot of hiring in the leisure and hospitality industry as the economy reopened, but the diffusion index has since returned to near 50, echoing other indicators that the labor market has started to cool.

“Given how many jobs we are currently adding per month, the diffusion index is relatively low,” said Gimbel. “And it speaks to the way that job growth has become really concentrated in a couple of industries.”

Gimbel noted that government, health services and education seem to be the industries were that growth is most concentrated.