Global economic activity has rebounded more strongly than most commentators expected over the last six months. A post last week suggested that this recovery would soon be reflected in a significant improvement in labour market indicators.

The US Conference Board this week reported that its employment trends index – a composite of eight labour market leading indicators – rose for the second consecutive month in October. In the last five US recessions the index bottomed between one and four months before non-farm payroll employment. With its recent low reached in August, this suggests a trough in payrolls by December.

The first chart shows the three-month change in payrolls together with an alternative labour market gauge based on three indicators excluded from the Conference Board measure – the ISM manufacturing employment index, the monthly tally of job-cut announcements by Challenger, Gray and Christmas, and the NFIB small firm hiring plans index. This also suggests an imminent employment trough.

In the UK, promising indicators include the strong Markit / REC job placements index highlighted in last week's post and a further reduction in the net percentage of households expecting higher unemployment in the EU Commission consumer survey – see second chart.

Improving labour market indicators will boost confidence in the sustainability of the economic recovery while calling into question current super-loose monetary policies. In other words, better news for Main Street in early 2010 will represent the first real test of the liquidity-driven rally in markets.