Not all US unemployment rate increases are created equal

The recent increase in the unemployment rate is less threatening than it appears as it is limited in scope across age cohorts and industries, reducing the odds that a negative reinforcing cycle of unemployment, income loss, and job losses takes hold.

What you will learn:

• The breadth of unemployment is key in determining the vulnerability of the labor market and broader economy along with the reason for the increase in the unemployment rate. Decomposing the unemployment rate among age cohorts shows that some of the increase is attributed to a higher participation rate, particularly among prime-age workers.
• Using the Bureau of Labor Statistics micro data, we find that there has been an increase in the unemployment rate among foreign-born workers who have immigrated fewer than three years ago, while the native-born unemployment rate has been relatively unchanged since end-2023.
• This is not the first time the unemployment rate has risen this cycle, but the labor market is more vulnerable this time because of the significant drop in the number of job openings. The risk is that the economy weakens, cutting into demand and reducing job openings. This would be the catalyst for a large rise in layoffs, a reduction in hours worked, a lengthening in the duration of unemployment, and a higher unemployment rate.