San Francisco Federal Reserve: The key to the job market and unemployment rate growing in sync is the sharp increase in new immigrants!
Although the U.S. job market has maintained growth beyond expectations, the long-term natural rate of unemployment (adults) has remained at 3.8%. The core reason is the significant impact of new immigrants.
This article is based on a survey report provided by Stephanie A. Stewart, Vice President of Economic Research at the Federal Reserve Bank of San Francisco. The purpose of this article is to use data to explain why employment growth exceeded expectations but the unemployment rate remained stable. The following is a brief summary and interpretation of this article:
1. The pace of job growth in the United States is higher than expected before the pandemic: This indicates that the number of new jobs exceeds the level needed to maintain the unemployment rate. Normally, rapid job growth will lead to a decline in the unemployment rate, rather than maintaining or increasing it.
2. The U.S. unemployment rate hit 4.1% in June, and the long-term natural rate of unemployment for adults remained at 3.8%. This shows that despite strong job growth, the U.S. job market has not improved significantly, but has deteriorated in some aspects.
3. The short-term employment break-even rate rose to 230,000 jobs: The employment break-even rate refers to the number of jobs that an economy needs to create to maintain a break-even state. In the current US economy, this means that 230,000 new jobs are needed to maintain economic stability, and the increase in this number shows that the job market is still expanding.
4. The long-term employment break-even rate remains unchanged, maintaining between 70,000 and 90,000 jobs per month: Comparing the long-term and short-term data, the increase in short-term jobs has led to a hot job market, but this heat mainly comes from immigration. Although the demand for jobs has increased, the long-term natural rate of unemployment remains at 3.8%.
5. Keeping the unemployment rate stable requires growth in the labor market: Assuming a monthly labor force growth of 100,000 people and the current unemployment rate of 4%, 96,000 jobs need to be created each month to keep the unemployment rate stable.
Conclusion: The main reason for stable employment growth and unemployment in the six months to May 2024 is changes in the short-term employment break-even rate, which is mainly influenced by the labor market cycle and immigration.
In the past, when the job market grew beyond expectations, the unemployment rate remained stable. The current job market is cooling, and a small increase in the unemployment rate is normal. At the same time, the long-term natural rate of unemployment for adults is still 3.8%. If immigration remains stable and the labor market participation rate remains active, the problem of rising unemployment can be alleviated to a certain extent in the future. The subtext is that if immigration becomes unstable, resulting in a decline in the labor market participation rate, there may be an increase in unemployment in the future, which may be caused by the instability of immigration.
If the Fed accepts this view, then a future worsening of unemployment in the short term may not prompt the Fed to cut interest rates.
