Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / Long-Term Unemployment Is Surging What It Signals
Transcript
- Lucas: So the May jobs report drops Friday, and everyone's going to be watching the headline payroll number — ADP already gave us a hint with 122,000 private-sector jobs added, a bit stronger than expected. But there's a quieter story in the April data that I think matters more right now. Luna: The long-term unemployment surge, right? I saw that headline this morning — it feels like one of those numbers that doesn't get enough attention. Lucas: Exactly. Because even though the unemployment rate is still at 4.3 percent — flat from last month, historically low — the composition is shifting. The number of people out of work for 27 weeks or longer has been climbing steadily. We're looking at levels we haven't seen since early 2021, right after the pandemic peak. Luna: And that's despite job openings popping back up. JOLTS for April came in at 7.6 million — that's a big jump from 6.9 million in March. So there are jobs out there, but the long-term unemployed aren't filling them. Lucas: That's the puzzle. Employers are still hiring — nonfarm payrolls added about 115,000 in April, and we've got 158.7 million people employed overall. But the longer someone is out of work, the harder it is to get back in. Skills atrophy, networks fade, and there's often a stigma in the hiring process. Luna: There's actually research showing that after six months of unemployment, the callback rate for job applications drops by more than half. It's like a resume expiration date. Lucas: Right. And that's what makes this a structural problem, not just a cyclical blip. The Fed is watching this closely because if long-term unemployment keeps rising, it could put downward pressure on wages — despite the headline numbers looking okay. Average hourly earnings were up to $37.40 in April, but that growth has been slowing. Luna: Which feeds into the rate-cut debate. The Fed funds rate is at 3.62 percent right now, and the market is pricing in cuts later this year. But if the labor market is actually softening beneath the surface, maybe they move faster? Lucas: Maybe. But the Fed has been cautious — they've said they need to see more evidence that inflation is sustainably heading toward 2 percent. Core PCE is still at 3.3 percent year-over-year. So they're balancing two risks: cutting too soon and rekindling inflation, versus cutting too late and letting the labor market deteriorate. Luna: And long-term unemployment is the kind of lagging indicator that could tip the scales. If Friday's report shows a big jump in the duration metrics, I think the narrative shifts. Lucas: For sure. Let's look at what we know from April. Initial jobless claims have been creeping up — the latest reading was 225,000, up from 212,000 the week before. That's still low historically, but the trend is upward. And continuing claims have been elevated too. Luna: So more people are staying on unemployment benefits longer. That's consistent with the long-term unemployment story. Lucas: Exactly. And here's a number that stood out to me: the insured unemployment rate — that's the ratio of people collecting benefits to the total covered workforce — has been ticking higher. It's not dramatic, but it's persistent. Luna: One thing I wonder about is the mismatch between the jobs available and the skills of the long-term unemployed. We've seen a lot of hiring in healthcare, government, and leisure. But if you were laid off from a tech role or a manufacturing job, those retraining programs take time. Lucas: Time that people don't always have. And the longer they're out, the more their savings drain. Consumer sentiment has been fragile — we saw that in the recent surveys. If people can't find work, they spend less, and that ripples through the economy. Luna: It also puts pressure on the social safety net. Extended unemployment benefits expired, so most people are on the standard 26 weeks. After that, it's just state-level assistance, which varies a lot. Lucas: Right. So the question for Friday is not just how many jobs were added, but who is getting left behind. The headline payroll number might be fine — economists expect around 180,000 — but if the unemployment rate ticks up or long-term duration jumps, that's the real story. Luna: And the market is already at all-time highs — S&P 500 at 7,584, Dow at 51,562. A weak report could actually spook investors if it signals deeper trouble. Lucas: Yeah, because the vibe right now is Goldilocks — not too hot, not too cold. But long-term unemployment is a cold spot that's getting colder. And the Fed doesn't have a great tool to fix it. Rate cuts can stimulate demand, but they don't retrain workers or fix hiring bias. Luna: So it's more of a fiscal policy issue — workforce development, community college partnerships, things like that. But those take years, not quarters. Lucas: Exactly. And in the meantime, you've got hundreds of thousands of people who are effectively detached from the labor market. The labor force participation rate has been flat around 62.7 percent — it's not collapsing, but it's not recovering to pre-pandemic levels either. Luna: We should also mention that this isn't uniform across demographics. Long-term unemployment tends to hit older workers harder — they face age discrimination — and also workers with less formal education. Lucas: Good point. And that's part of why the headline numbers can be misleading. A 4.3 percent unemployment rate feels great, but if you're 55 and been looking for work for eight months, it doesn't feel great at all. Luna: So what should listeners watch for in Friday's report specifically? Beyond the payroll number. Lucas: Look at the duration of unemployment — the BLS breaks it into less than 5 weeks, 5 to 14 weeks, 15 to 26 weeks, and 27 weeks plus. If that 27-plus category jumps by more than 50,000, that's a signal. Also look at the number of people working part-time for economic reasons — that's involuntary part-time. And the broadest measure, U-6, which includes discouraged workers. Luna: U-6 is at 7.8 percent last I checked. If that moves toward 8 percent, it's another yellow flag. Lucas: Right. And we'll have all that data Friday morning. But even before then, we can see the trend in the weekly claims data. The four-week moving average of initial claims has been rising since February. It's not a cliff, but it's a slope. Luna: Which brings us to the bigger picture — the economy is slowing, but not collapsing. Real GDP growth annualized was 1.6 percent in Q1, up from 0.5 percent in Q4, but still below trend. And nominal GDP is $31.8 trillion, so the economy is huge. But the margins are where the pain shows up. Lucas: And those margins are exactly what we try to cover here — the parts of the data that tell you where the economy is actually headed, not just where it's been. If you find that kind of analysis useful and want to help us keep doing it ad-free, we really appreciate the support. Luna: Yeah, a couple of dollars a month genuinely makes a difference. If you've gotten something out of walking through the economy with us, you can find us at buy me a coffee dot com slash fexingo. Lucas: And we'll keep the show free and independent because of that. So, back to Friday — one thing I'll be watching is the revision to prior months. The JOLTS data for April was revised up significantly, and that changed the narrative. If the payroll data gets revised down, that's another piece of the puzzle. Luna: Especially since the ADP number was a bit above expectations — sometimes that signals an upside surprise for the official report, but not always. The adp private payrolls correlation has been weak lately. Lucas: True. So the best approach is to wait for the BLS release and look at the details. But the long-term unemployment trend is already clear: it's rising, and it's not getting the attention it deserves. Luna: And it's one of those numbers that, if it continues, will eventually force the Fed to acknowledge that the labor market isn't as tight as it looks. Lucas: Which could mean a faster pace of rate cuts than the market is currently pricing. The 2-year Treasury yield is at 3.62 percent, and the 10-year at 4.48 percent — that's a steep curve, which typically signals that the market expects cuts ahead. But if long-term unemployment becomes a bigger story, those cuts might come sooner. Luna: So keep an eye on Friday at 8:30 AM Eastern. We'll be back Monday to break it all down. Lucas: Yeah, it's going to be an important report. Until then, take care.