How to interpret the pain at the edge of America’s labour market

Subscribe to enjoy similar stories. Lately economists have been vigorously debating the health of America’s labour market. Some argue that the jobs market is weakening, portending a downturn and requiring further interest-rate cuts from the Federal Reserve.

Others disagree. And with inflation still above the Fed’s target, they say, the central bank should hold fire. At first glance November’s jobs figures, published on December 16th after a delay caused by the recent government shutdown, appear to lend support to the employment pessimists.

Unemployment increased to 4.6%, from 4.4% in September. And workers in at the margins of the labour market in particular are struggling, a development which in the past has been a warning sign of a wider downturn. Just how worrying is it this time? Over the past year, the unemployment rate of people aged between 16 and 24 has risen by 1.2 percentage points, and that for black Americans has gone up by 1.9 points (see chart 1).

By comparison, the headline rate has increased by just 0.4 points. The number of people working part-time for economic reasons—those who want full-time jobs but can’t find them—has also risen appreciably. These are precisely the people likely to be hit first as the economy turns down.

One way to assess whether rising unemployment at the margins of the labour market really is a sign of trouble ahead is to modify the Sahm rule. The measure, devised by Claudia Sahm, a former Fed official, uses sharp increases in the unemployment rate to detect recessions. Today the indicator is still a little below the level taken to signal a downturn.