Decoding the Employment Trends Index: A Sector Rotation Playbook for 2025

The U.S. Conference Board Employment Trends Index (ETI) has long served as a barometer for labor market health, but its true power lies in its ability to signal asymmetric market reactions across sectors. As of September 2025, the ETI stood at 106.84—a modest rebound from its pandemic-era lows but still near critical levels. This data point, however, masks a deeper story: the divergent fates of Mortgage REITs (MREITs) and Leisure Products sectors in response to shifting employment dynamics. For investors, this divergence offers a roadmap for tactical positioning in a market increasingly defined by structural imbalances.

The ETI as a Sector Rotation Signal

The ETI's eight components—ranging from job openings to consumer sentiment—create a mosaic of labor market trends. When these indicators signal a slowdown, as they did in late 2025, the Leisure Products sector becomes particularly vulnerable. Consumer discretionary spending, which drives demand for leisure goods, is highly sensitive to employment stability and wage growth. During the 2020–2022 pandemic, for instance, the leisure and hospitality sector lost 8.2 million jobs, and its recovery took 26 months to complete. The ETI's decline during this period mirrored this stagnation, with metrics like the “jobs hard to get” index spiking to 19.1% in August 2025.

Conversely, MREITs have shown resilience in such environments. While they struggled during the 2022 rate-hiking cycle (the FTSE Nareit Mortgage REITs Index fell 26.6% that year), they rebounded sharply in early 2025 as the Federal Reserve began cutting rates. By January and February 2025, MREITs gained 5.4% and 6.1%, respectively, outperforming private real estate assets, which posted an average -1.6% return during the same period. This counter-cyclical behavior is rooted in MREITs' sensitivity to interest rate normalization. As mortgage rates stabilize and refinancing demand rises, MREITs benefit from improved spreads and asset quality.

Backtesting the Asymmetric Response

Historical data underscores the validity of this strategy. During the 2020 pandemic, as the ETI plummeted, Leisure Products sectors—particularly those tied to travel, dining, and entertainment—collapsed. For example, the lodging and resorts segment, a proxy for leisure demand, saw a 40% drop in occupancy rates in April 2020. Meanwhile, MREITs like Annaly Capital Management (NLY) and AGNC Investment Corp (AGNC) held up better than equity REITs, with their average yield of 11.4% as of February 2025 acting as a buffer against market volatility.

The 2025 labor market slowdown further validates this pattern. By July 2025, job openings had fallen by 176,000, and the ETI hit 106.41—its lowest since 2021. At this inflection point, shifting capital from Leisure Products to MREITs proved prescient. The latter's performance in early 2025, driven by rate cuts and housing demand recovery, highlights their role as a defensive asset in a slowing economy.

Tactical Positioning for 2025–2026

The ETI's components provide actionable signals for investors. For instance:
- Job Openings and Industrial Production: These indicators, which contributed positively to the September 2025 ETI, suggest a stabilizing labor market. However, the flatline in “firms with unfilled positions” (32%) and the decline in temporary-help hiring signal a low-hire, low-fire environment. This favors MREITs, which benefit from long-term mortgage demand rather than short-term labor fluctuations.
- Consumer Confidence: The drop in “jobs hard to get” to 18.2% in September 2025 indicates improving sentiment, but it remains elevated compared to pre-pandemic levels. Leisure Products, which rely on discretionary spending, are unlikely to see a broad-based recovery until this metric normalizes.

Investment Advice: Overweight MREITs, Underweight Leisure Products

Given the ETI's current trajectory and the historical asymmetry in sector responses, investors should consider:
1. Overweighting Mortgage REITs: Focus on high-yield MREITs with strong balance sheets and exposure to fixed-rate mortgages. These entities are well-positioned to capitalize on rate normalization and refinancing activity.
2. Underweighting Leisure Products: Avoid sectors like lodging and entertainment until the ETI signals a sustained recovery in consumer discretionary spending. Instead, allocate to sectors with pricing power, such as healthcare or industrial REITs.

The ETI's role as a leading indicator cannot be overstated. By aligning sector allocations with its signals, investors can navigate the asymmetric risks of a fragmented recovery. As the labor market inches toward normalization, the playbook is clear: MREITs offer a hedge against uncertainty, while Leisure Products remain a speculative bet until employment trends firm.

In a world where macroeconomic volatility defines market outcomes, the ETI provides a compass. For those willing to read its signals, the path to asymmetric returns lies in disciplined sector rotation.