The “Bull”

Every month, the unemployment rate attracts extensive media attention, as a critical measure of economic (and market) health. Leading up to the release of the data, pundits routinely speculate over its trajectory. Will it drop, indicating an active labor market? Or will it increase, thus signaling, perhaps, a period of economic downturn? Then there is all the speculation about what the Federal Reserve (the U.S. central banking system) may do in response.

The unemployment rate is simply the number of unemployed people in the U. S. as a percentage of the labor force (the labor force is the sum of the employed and unemployed)¹. Its calculation is even simpler:

 (Unemployed ÷ Labor Force) x 100¹

But according to pundits on Yahoo Finance and CNBC, future estimates of this statistic served as a clarion call for a (hypothetical) economic recession. In July 2022, Goldman Sachs projected unemployment would reach “around 4%” by May of 2023². By September 22, 2022, CNBC cited the Federal Reserve’s prediction of 4.4% as a metaphorical “death-knell” for markets in 2023³.

The Reality

As of May 2023, neither of these predictions have come to pass. In fact, unemployment trends have been moving in the opposite direction from the previously mentioned estimates of 2022. On May 5, 2023, CBS News reported that the unemployment rate had dropped to 3.4%. In addition, the U.S. added 253,000 jobs to its economy⁴. There was no mass panic. The report did not herald severe stock market declines. Instead, we believe the U.S. economy has become incrementally more stable.

In fact, the unemployment rate has been on a steep downward trend since April 2020, dropping by approximately 10.3% over the following three years⁵.

The Point

Despite consistent downward trends, and the absence of a “seismic” market event, many financial pundits were comfortable foreshadowing worst-case scenarios. A sudden, steep jump in the unemployment rate would represent atypical change prompted by unexpected and unforeseeable circumstances that no pundits could reasonably be expected to predict.

As always, ignore the bull, trust the evidence. We believe there’s more to be learned from looking at the data than listening to talking heads.

Ignore the “bull”. Trust the evidence.

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[1] U.S. Bureau of Labor Statistics. January 11, 2023. Concepts and definitions (CPS). https://www.bls.gov/cps/definitions.htm#:~:text=The%20unemployment%20rate%20represents%20the,÷%20Labor%20Force)%20x%20100

[2] Unemployment could reach 3.8% by 2023, Goldman Sachs Predicts. July 18, 2022. Yahoo Finance. https://youtu.be/KJUgr6kQ52c

[3] Unemployment could end higher than Fed’s 4% projection, says Evercore’s Emanuel. September 22, 2022. CNBC. https://youtu.be/mAhCyMmJTaw

[4] U.S. adds 253 000 jobs in April unemployment rate drops to 3.4%. May 4, 2023. CBS News. https://youtu.be/2S3rTYryb5A

[5] From Bureau of Labor Statistics, United States Department of Labor via Data Commons. https://www.google.com/search?client=safari&rls=en&q=Unemployment+Rate+2023&ie=UTF-8&oe=UTF-8

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