Is the U.S. unemployment rate low due to increased hiring or an increasing number of people quitting the labour force?

This is an interesting one, one of our three U.S. recession indicators is the U.S. unemployment rate.

The U.S. Bureau of Labor Statistics data reveals that the U.S. unemployment rate has hit a new multi-year low four to eight months before the start of every recession since the 1940s. In other words, the economy hits full employment four to eight months before the start of a recession.

The unemployment rate goes up at least 1% and then doesn’t go back down without a recession occurring.

US unemployment rate until January 2019

 

The question is whether the U.S. unemployment rate is low due to increased hiring or an increasing number of people quitting their jobs and the labour force?

Below is a graph of the hiring, quits and layoffs,

Hiring quits and layoffs in the United States until January 2019

 

A fall in unemployment can come from more hiring, fewer layoffs or more people quitting their jobs or a combination of all the three.

Even though hiring has been increasing recently so have people quitting their jobs which has contributed to the low unemployment level.

US hires minus quits employment until 2018

One could say that times are good for people to quit their jobs, we do see that fewer people quit during a recession given fewer opportunities.

Total payroll or job growth hasn’t really accelerated since 2012, it remains close to a 2% annual growth rate.

US total payroll growth

There is another element to this – the labour force participation is at close to a 40-year low at 63.2%.

US labor force participation rate until January 2019

The unemployment rate is basically the difference between the labour force participation rate and the civilian employment to population ratio. As we wrote last year, fewer people in the working age group are participating in the labour force. Perhaps the question to ask is why are working age individuals quitting the labour force or not joining it at all?

 

Related:

Healthcare has displaced Retail as the largest employer in the United States

Here’s how the unemployment rate has changed for every state in the United States over the past decade

Manufacturing is growing in the United States, but it isn’t generating too many jobs

The U.S. unemployment rate is at an 18-year low but only because the labor force participation rate is close to a 40-year low

This is what has happened to the unemployment rate in the US four to eight months before every recession

Those three U.S. recession indicators – how near or far are those from being invoked? End of 2018 edition

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