Payden & Rygel: Cumulative change in composition of US unemployment

Payden & Rygel: Cumulative change in composition of US unemployment

5 augustus 2024

Fed
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At this week's FOMC press conference, Chair Powell faced a slew of questions about the labor market. Powell said the unemployment rate has risen but remains low, signaling a solid labor market. His response impressed neither the assembled reporters nor the financial market masses.

The July Employment Situation report will not help Powell's case. The unemployment rate jumped to 4.3% as of July, up 0.9 percentage points from its cycle-low in 2023 [April]. To labor market bears, the reading confirms a recession is underway. However, when breaking down the unemployment level by reasons for unemployment, 40% of the rise in total unemployment since cycle-low was due to entrants joining the labor force. In comparison, layoffs accounted for 20% of the cumulative increase.

Typically, layoffs drive the unemployment rate up in a recession. In addition, a 249k surge in temporary layoffs in July could be weather-related. While the risk of a recession has increased with the rise in unemployment, we don;t think the case is definitive.

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