The labor market today is hotter than during the 2008 financial crisis but Fed tightening will weaken it, Bank of America says

The current labor market is similar to the hot conditions of the late 1990s and the run-up to the 2008 financial crisis, according to Bank of America.

Friday's nonfarm payrolls jobs data came in better than expected, with employers adding 528,000 new jobs in July. The hot reading is in line with the expectations of BofA.

The BofA Indicator of US Labor Market Conditions was introduced by analysts. The variables include private payrolls, temporary help services employment, and labor force participation.

According to BofA, the current labor market conditions are hotter than the previous two peaks.

The gauge peaked nine months ahead of the recession officially being called by the National Bureau of Economic Research in January 2008, according to BofA.

The current data shows that there is a historically tight labor market.

The labor market has slowed over the past year as the economy recovered from the swine flu. When momentum is below average, labor market conditions tend to weaken.

The indicator shows that tighter monetary policy makes the labor market less active. BofA believes that a soft landing will be hard for the Fed to achieve and that a cooling in labor markets will have to happen in order to restore price stability.

As the US entered a recession, the level of labor market activity fell.

The US economy could fall into a similar situation if the Fed doesn't change its stance on monetary policy. The US will enter a mild recession in the second half of the 21st century, according to Bank of America.

BofA said that labor market developments could be seen as a negative signal for the longevity of the current expansion.