Signs in the US labour market suggest that a “hot” westerly wind could be affecting this indicator as well.
Analyzing the situation on the other side of the Atlantic, the US labor market is almost never in perfect balance. Even when things seem calm, there is some movement below the surface.
Fed Chairman Jerome Powell recently said: “The labor market appears to be broadly balanced.” Yes, unemployment remains historically low and job growth is still healthy. But things are not as calm as they seem.
Bad omens for the labour market
The question is whether labor market conditions are improving or worsening. The data is telling: they are worsening. Cracks in the labor market continue to widen, leading to unemployment and weighing on wage growth. The Fed, for its part, is deliberately ignoring the changing balance of risks.
The fact that Powell continues to call the economy stable, even as it slows, is a problem. It is abundantly clear that the Fed is not yet ready to step in and support worsening economic conditions, reinforcing a negative feedback loop.
Household budget constraints are already worsening. This will make it difficult for consumers to absorb higher prices.
If the Fed is preparing to put itself outside of this curve, then the risks are pretty clear: unemployment will rise. Beneath the calm surface of the labor market are a few major undercurrents that show how worrisome the situation has become.
1. The first is the continued decline in job openings
The latest data from the job site Indeed shows that new job postings are falling to new lows, a sign that demand for hires continues to decline.
The latest change is particularly significant because of a concept called the Beveridge curve, which depicts the relationship between job openings and the unemployment rate.
It suggests that companies are only listing the roles they actually need to fill, so further job openings mean bigger increases in unemployment. Things could get bad—and fast.
2. Another worrying trend is the types of jobs being added to the economy
Sectors of the labour market most closely tied to the underlying health of the economy continue to slow, with much of last year’s employment growth held back by niche sectors like private education and health services.
Above all:
3. Employment in home construction has declined over the past six months.
The number of newly completed single-family homes on the market continues to rise. With more units ready to sell, there is little need to develop new housing.
4. Falling crude oil prices will weigh on oil and gas-related employment.
After all, a survey conducted in March by the Dallas Federal Reserve found that companies needed average oil prices of about $65 a barrel to make profitable drilling. If energy companies are less profitable, then employment in the sector is expected to decline.
5. Manufacturing employment is flat, at best.
Survey-based measures of factory employment continue to slide, suggesting additional job cuts are on the horizon. Furthermore, Trump’s tariffs directly affect many of the intermediate goods that factories use in their production processes.
6. Another current of concern is the composition of America’s unemployed
While the overall unemployment rate has only risen to 4.2% from a low of 3.4% in April 2023, we are seeing a growing pool of medium- and long-term unemployment.
The number of citizens who have been unemployed for between 5 and 14 weeks jumped to 2.27 million in April of this year, up from a low of 1.53 million in 2022. Those considered long-term unemployed, meaning just over 6 months, are up to 1.67 million from 1.05 million at the beginning of 2023.
Expanding Risk
7. The risk of unemployment continues to expand: The longer someone is out of work, the harder it becomes to get back to work
Similarly, the number of permanent job losses, which is the number of people who have been laid off or left without a job and are looking for new ones, continues to rise.
This category now represents more than a quarter of the unemployed population, a historically high percentage. The composition of unemployment is getting worse, not better. The risk is that tariffs will lead to further layoffs (as companies anticipate the tariffs will be rolled back) that end up being permanent.
What about wages?
8. The wage data for those who do have jobs also shows worrying signs. Excluding jobs that pay bonuses or commissions, wages and salaries rose by just 3% annually in the first quarter of the year.
And the future looks bleak, with a freeze on everything related to that, including wage increases and small business compensation.
Trump’s tariff turmoil has made an already bad situation worse. Uncertainty is a hallmark of trade negotiations, and it’s hard for any company to invest and hire while the landscape remains murky.
Trade negotiations take time. The issue is how much damage has been caused by tariffs, how much damage is caused by uncertainty, and how much damage continues to be caused by the Fed stepping in to calm fears.
The situation in the EU
A total of 12.9 million people were unemployed in the European Union in March, of which 10.8 million in the euro area.
Compared with February, the number of unemployed increased by 74,000 in the EU and by 83,000 in the euro area. However, there was a significant decrease on an annual basis, with 340,000 fewer unemployed in the EU and 288,000 in the euro area.
Unemployment among young people under 25 remains high, although on a slight downward trend. In March, 2.82 million young people in the EU were unemployed, of whom 2.26 million in the euro area.
The youth unemployment rate fell to 14.5% in the EU (from 14.6% in February) and to 14.2% in the euro area (from 14.3%). In absolute terms, this translates into 25,000 fewer young people unemployed in the EU and 19,000 in the euro area on a monthly basis. Compared to March 2024, the decrease amounts to 63,000 and 43,000 respectively.
The unemployment rate for women in the EU remained stable at 6%, while for men it increased marginally to 5.7% from 5.6% in February. Correspondingly, in the euro area, unemployment for women remained at 6.4%, while for men it increased slightly to 6.1% from 6%.
