Working Paper

A New Labor Market Stress Indicator

Abstract: Recessions are periods where the labor market deteriorates rapidly. Supporting business conditions to prevent such deterioration is a core objective of policymakers. In this paper we construct a labor market stress indicator (LMSI) primarily based on state-level unemployment insurance claims data that are observable as often as at weekly frequency. By examining both the geographical spread and the depth of labor market stress buildup, we provide an early indicator whose main function is to alert policymakers of potential economic slowdowns. Because the majority (but not all) of these slowdowns coincide with NBER recessions, the LMSI is also a useful signal of whether the economy is in recession. The paper then evaluates this feature of the LMSI compared with other recent indicators and highlights the strengths and weaknesses of each.

JEL Classification: E32; E65; E66; J11; J60;

https://doi.org/10.24148/wp2025-31

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2025-12-31

Number: 2025-31