Employment Trends Index Falls to 107.01 in May, Signaling Labor Cooling
1h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
employment-trends-indexlabor-market
Fazen Markets Editorial Desk
Collective editorial team · methodology
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The Conference Board Employment Trends Index (ETI) declined to 107.01 in May 2026 from an upwardly revised 107.88 in April, the organization announced on June 8. The 0.8% monthly drop suggests a moderation in the labor market’s forward momentum. May’s nonfarm payrolls, however, increased by 172,000 jobs, indicating current conditions remain strong even as the outlook softens. The index remains 2.1 points above its level from six months ago, pointing to underlying resilience in hiring trends.
The ETI decline arrives as markets scrutinize every labor data point for signals on the Federal Reserve's policy path. The current macroeconomic backdrop features the Fed Funds target rate holding steady in a restrictive range, with traders pricing in potential cuts later in the year. The catalyst for the May softening appears to be a broad-based deterioration in forward-looking components rather than a single outlier event.
Historical precedent shows the ETI is a reliable leading indicator, typically turning down several months before payroll growth meaningfully decelerates. A similar 0.8-point monthly decline occurred in August 2023, which preceded a slowdown in hiring momentum throughout the following quarter. The current reading, while off its recent high, remains well above the 100.00 level that historically corresponds with net job creation.
The upward revision to April’s figure from 105.77 to 107.88 is significant. It indicates the prior month’s labor momentum was stronger than initially reported, making May’s pullback appear more pronounced by comparison. This revision pattern often suggests underlying volatility in labor demand that may not be fully captured in the headline monthly change.
The May ETI reading of 107.01 represents a clear step down from recent strength. The index has now declined in two of the past three months, creating a less consistent upward trajectory. Five of the eight constituent components made negative contributions to the index in May, indicating the softening is broad-based rather than isolated to a single sector or metric.
A major negative factor was the percentage of firms with jobs hard to fill, which fell to 29% from 34% in April. This five-percentage-point drop suggests employers are finding it easier to fill vacancies, a sign that labor shortages are easing and wage pressures could moderate. This component is a critical input for gauging tightness in the labor supply-demand balance.
The JOLTS Job Openings figure presented a contradictory signal, increasing sharply above 7.6 million. The Conference Board noted this gain was largely driven by an unusual surge in professional and business services openings, suggesting it may not reflect economy-wide strength. This divergence between strong openings data and weaker hiring plans creates ambiguity in interpreting overall labor demand.
Compared to other labor indicators, the ETI’s signal aligns with recent upticks in initial jobless claims but contrasts with still-strong payroll gains. The three-month average for payroll growth remains above 200,000, while the unemployment rate holds near multi-decade lows at 3.9%. The ETI provides a more nuanced forward-looking perspective than these contemporaneous measures.
The ETI softening supports the case for Federal Reserve rate cuts in 2026, particularly if confirmed by subsequent employment reports. Rate-sensitive sectors like real estate (XLRE) and technology (XLK) typically benefit from lower borrowing costs, while financials (XLF) may face headwinds from narrowing net interest margins. Treasury yields, particularly on the short end of the curve, could decline as rate cut expectations firm.
The decline in firms reporting jobs hard to fill suggests wage growth pressures may continue abating. This would be positive for margin outlooks in labor-intensive sectors like retail (XRT) and restaurants but could indicate decelerating consumer income growth. The professional and business services sector, which drove the JOLTS surge, bears watching for whether that strength proves sustainable or idiosyncratic.
A acknowledged limitation is the ETI's composition of eight components that can sometimes provide conflicting signals, as seen in the divergence between falling hiring plans and rising job openings. Markets may overweight the more timely payrolls data until the ETI's directional signal becomes more consistent across multiple months. The risk remains that current labor strength proves more persistent than leading indicators suggest.
Positioning data shows asset managers have been adding duration exposure in anticipation of cooling labor conditions. Flow trends favor growth-oriented equities over value shares as investors price in a potential Fed pivot. Short positions in treasury futures have been reduced notably across the curve in recent weeks.
The next crucial data point arrives with the June Employment Situation Report on July 3, 2026. Markets will scrutinize whether payroll growth remains above 150,000 and whether wage growth decelerates toward 3.5% year-over-year. Any reading below 100,000 jobs would likely accelerate rate cut expectations.
The July 1 release of the JOLTS report for May will provide critical context for the unusual surge in professional services openings. A reversal would confirm the April reading was anomalous, while another increase would suggest structural shifts in services demand. The quits rate, particularly in white-collar sectors, will be watched for signs of changing worker confidence.
Key levels to monitor include the 10-year Treasury yield at 4.25%, a breach of which could signal deeper repricing of growth expectations. The S&P 500's support at 5,200 represents a level where labor concerns might trigger broader risk-off sentiment. The U.S. Dollar Index (DXY) at 104.50 represents a threshold where Fed policy expectations could drive further dollar strength or weakness.
The Conference Board Employment Trends Index aggregates eight labor-market indicators into a single composite measure that leads employment trends by several months. Components include percentage of respondents finding jobs hard to fill, initial claims for unemployment insurance, percentage of firms with positions not able to fill right now, number of employees hired by temporary-help industry, part-time workers for economic reasons, job openings, industrial production, and real manufacturing and trade sales.
The ETI has historically provided reliable signals ahead of labor market downturns, typically declining for 3-5 consecutive months before payrolls turn negative. The index fell for four straight months before the 2020 recession and for seven months before the 2008 financial crisis. However, the index can give false signals during economic soft landings, as it declined temporarily in 2015-2016 without triggering a recession.
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