Why Is The Unemployment Rate Still Low?

 Ron.Moss
 
  Ron.Moss
 
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Expertise in identifying undervalued companies with strong growth potential. Proficient in conducting thorough financial analysis and market research. Skilled in developing investment strategies that align with clients goals and risk tolerance.
 

•  Jan 19 2023
 

The last few weeks and months give the impression of widespread layoffs. It started a few months ago with hiring stops at the very least and also the news about layoffs in the big tech companies, and it slowly expanded as the numbers grew from hundreds to thousands employees. Meta announced the layoffs of thousands of employees after the weak reports, Twitter fired a significant percentage of the workforce and other large companies as well and the numbers look scary, and the list is long.

And yet, every time the employment data is published, the same sentences are repeated: that the unemployment rate remains lower than expected. Every press conference of the chairman of the Fed, he emphasizes the issue that allows him to continue raising interest rates and worries him about the continuation of inflation. The number of open jobs is also almost at a historic high, despite the slight weakness in recent months.

So, how can it be that the unemployment rate continues to be low?
The answer is related to several factors, some long-term and some short-term.

Baby Boomers

After the Second World War, many fighters and soldiers returned home after long months and years at the front. The effect of this return began to be seen 9 months later, when naturally many babies began to be born and the baby boom period that changed the face of countries in the world began. The birth rate continued to rise steadily until 1957.

In total, in the post-war period, tens of millions of new Americans were born, the baby boom generation, who changed the demographics and boosted the economy for many years to come. After that, the birth rate began to gradually deteriorate until today, and today the fertility rate is less than 2 children per woman.

The baby boom generation started to retire a few years ago, and fewer new people are entering the labor market, so that there is a built-in deficit in the number of American workers (a deficit that is partially filled by immigration). This is not something that is going to change in the near future, maybe even the situation will get worse in this respect.

New Jobs

Another factor from the long-medium term is the proportion of workers looking for new jobs. Unemployment is measured among the people who want to work, not those who have stopped looking for work or have never looked for one. And the number of those who do not participate in the labor market at all for one reason or another is relatively high. The phenomenon gained momentum during the corona epidemic, and since then the trend has not changed.

Another factor to consider when trying to understand the numbers is that the laying off companies are international companies, and quite a few of the layoffs do not take place in the United States at all. Twitter, for example, has laid off many of its Indian engineers, where it has shut down its operations. So are the other giant companies.

Conclusion

The next time we see thousands of workers laid off in companies, we should take things in the right proportion, and understand that there is still a long way to go to change the unemployment rate and change the Fed's policy.

Please note that the article should not be considered as investment advice or marketing, and it does not take into account the personal data and requirements of any individual. It is not a substitute for the reader's own judgment, and it should not be considered as advice or recommendation for buying or selling any securities or financial products.

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