Unemployment, Recession, Soft-Landing, and the Stock Market. A Few Comments …

The ebb and flow of Bull markets is always emotionally draining – particularly the episodes of ebb!

Financial market turbulence ruled last week.   Bad earnings reports, weak economic reports, and a continuation of the Mag 7 stock market selloff has caused investors to do some soul searching.  What follows are a few charts and some commentary highlighting some thoughts on the week that just was.

Rising unemployment not due to increased layoffs but rather due to new entrants expanding the labor force

The number of unemployed Americans has risen by about 1.039 million since January, but this is primarily because the labor force is growing rather than due to existing job losses.   Over this same time period, the labor force has risen by 1.153 million – i.e., new entrants to the jobs market have slightly outpaced the rise in unemployment.   The supply of labor is growing faster than demand but the recent rise in unemployment is due predominantly to new job seekers rather than existing workers losing their jobs. 

As chart 1 demonstrates, when a rise in unemployment indicates recession usually labor force growth stalls or contracts suggesting increased unemployment is due primarily to existing workers losing their jobs.  In 2001, a stall in labor force growth (highlighted by the red circles) led to the rise in unemployment and a recession.  Similarly, in 2007, the labor force first stalled and eventually contracted as unemployment rose and the economy headed into a recession.  And the pandemic recession of 2020 was initiated by a complete collapse in the labor force causing a surge in unemployment.