US Labor Market Deep Dive

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US Labor Market Deep Dive

Yesterday we discussed the state of the US labor market for recent college grads, and the news wasn’t good. Unemployment for this cohort (aged 22 to 27) sits at 4.0% as of September 2019, the latest data available. That’s not only worse than the overall US unemployment rate of 3.6% just reported on Friday for October, but it is also higher than that group’s 3.6% jobless rate in October 2018.

Today we want to expand the conversation about the US labor market and look at the internals of last Friday’s report. We look at 4 specific indicators to assess the American labor market and, by extension, the US economy as a whole:

#1: The Sahm Rule Recession Indicator, which we highlighted last month and was featured in the Wall Street Journal just today. This measure compares current 3-month average headline unemployment rates to the trough of the same calculation over the prior 12 months. When the former is 0.5 points or higher than the latter, a recession is about to start.

Here is the Sahm indicator, including the data from last Friday’s report:

Bottom line: at a reading of -0.3, there is no sign of an imminent US recession.

#2: African American unemployment, which academic studies show is a reliable indicator of an imminent downturn in US labor markets. Unemployment for this cohort begins to turn higher at a faster rate than the general population when a recession is starting to take hold.

The most recent data, and some historical perspective:

  • Friday’s jobs report showed October African American unemployment at 5.4%, the lowest reading back to 1972 when the BLS first started to collect data for this demographic group.
  • This is meaningfully lower than both October 2018 (6.2%) and YTD ex October 2019 (6.3%).
  • African American labor force participation has been stable over the last 12 months at 62 – 63%.

Bottom line: another positive sign about the US labor market and the domestic economy generally.

#3: Workers who finished their formal education with a high school degree. Less than half (42%) the current US workforce has a 4-year college degree, and fully 25% completed high school but did not attend a 2- or 4-year college. We look at the high school cohort to assess both how much slack remains in the US labor market (there is none in the college educated group) and how quickly that is disappearing.

Here is the data:

  • Unemployment for this cohort has been stable all year. October’s jobless rate was 3.7%, the same as the average from January – September. It was, however, modestly lower than October 2018’s 4.0% reading.
  • Participation rates have been slowly increasing. Last month was 57.8%, in line with Jan – Sept’s average but slightly better than last year’s monthly average of 57.5%.

Bottom line: the data here shows a robust US labor market for workers with less educational attainment, another positive about the state of the broad economy.

#4: The broadest measure of unemployment (U-6), which uses a more inclusive measure of joblessness than the headline number. We think of this as the “real feel” temperature of the US labor market, including people who might be drawn into the labor force if they see a viable opening as well as those who are only employed part time but want a full time position.

The data:

  • Current US unemployment of 7.0%, better than the Jan – Sept 2019 average of 7.3%.
  • Unlike the headline number, U-6 unemployment is not at 50-year lows. Rather, it is similar to the end of the 1990s cycle with readings spot-on those of 2000.

Bottom line: as with the other 3 readings, another positive sign about the US economy/labor market.

Summing up: as good as Friday’s headline numbers were, our 4 “deep dive” indicators reveal an even more upbeat assessment of US labor market conditions. Early warning flags like the Sahm Recession model and African American unemployment go a step further, signaling optimism about the near future. Now, we just need the job market for young college grads to pick up…