August 5, 2022

The unemployment rate fell 0.1% in July to 3.5% after having been unchanged in May and June at 3.6%.  The labor force fell by 63 thousand in July.   Employment rose by 179 thousand.  As a result, the number of unemployed workers declined by 242 thousand in July and the unemployment rate fell 0.1% to 3.5%. Payroll employment jumped by 528 thousand.

How come the two estimates of employment are different?  First, the two are figures are derived from separate data streams.  The payroll number is calculated from employment numbers reported by a large number of employers across all industries.  Employment for the unemployment rate calculation is derived from knocking on doors and asking people if they have a job.  It is known as the  household survey.  One conceptual difference is that the household survey includes people who are self-employed which would not be captured in the establishment survey.  There is always monthly noise between the two series.  Over time the two surveys seem to show roughly comparable gains in employment.

With a continuation of steady job gains we expect the unemployment rate to remain at 3.5% through the end of this year and to increase 0.1% to 3.6% by the end of 2023 as the Fed continues to raise rates..  The Fed considers full employment to be 4.0% which means that at that level everybody who wants a job has one.  Given that the current is well below the full employment threshold it implies there will be continuing upward pressure on wages as firms scramble and bid against each other to get the required number of workers.

While the official rate is the most widely used, the reality is that the official rate can be misleading because it does not include “underemployed” workers which is true.  There are two types of “underemployed” workers.  First, there are people who have unsuccessfully sought employment for so long that they have given up looking for a job.  Second, are those workers  that currently have a part time position but indicate that they would like full time employment.  The total of these two types of underemployed workers are  “marginally attached” to the labor force.  The number of these workers has declined steadily since the recession ended in April of 2020, but it is still slightly higher than it was prior to the recession.

We should probably be focusing more on the broadest measure of unemployment because it includes all of these underemployed individuals.  The broad rate jumped by 14.1% in April 2020 from 8.7% to 22.8%, but then declined steadily.  It was unchanged in July at 6.7% after having fallen 0.4% in June to 6.7%.  Full employment for this measure of unemployment is somewhere around the 8.0% mark.

Given the steady gains in employment we look for GDP growth of 1.5% in the second half of the year after having declined in each of the first two quarters.  We also look for GDP growth of 2.0% in 2023.

Stephen Slifer


Charleston, SC