The labor market is worse than than it appears: Chart of the Week

This is Chart of the Week from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:

A string of jobs reports has told a similar story for months now, if you look at the headline numbers.

It’s a simple narrative: The labor market has cooled significantly over the past several years, but remains overall resilient from a broader slowdown.

Next week, the May jobs report is expected to bring more of the same headlines, as it’s anticipated to show the US labor market added 130,000 jobs with the unemployment rate holding steady at 4.2%. More resiliency.

But the story of job hunting in America has been far more bifurcated, masked by these broad figures. Behind the solid headline numbers is a hiring rate hovering near a decade low. So too is the rate at which Americans are quitting their jobs.

As Fed Chair Jerome Powell put it on Jan 29, “It’s a low hiring environment. So if you have a job, it’s all good. But if you have to find a job, [the] hiring rates have come down.”

It’s yet another tale of two economies, and one that’s hammering a specific group: recent college grads.

With the labor market stuck in neutral, the millions of students who walked off the campus quad for the final time this month are facing a challenging situation.

The three-month moving average of the unemployment rate for recent graduates aged 22 to 27 currently sits at roughly 5.3%, well above the national average of 4.2%, per Oxford Economics. As our Chart of the Week shows, this is a historic anomaly.

“It’s a first sign of hitting a point where the labor market is at kind of a breaking point,” Indeed economist Cory Stahle told Yahoo Finance. “Things overall are still solid, but the fact that we’re seeing pockets like these younger workers starting to get hit harder is clearly very concerning.”

The story of these workers, why they aren’t finding jobs, and whether or not they eventually will is at the crux of the current US labor market conundrum.

“Right now, we’re on a trend where we’re facing a lot of headwinds,” Stahle said. “The labor market is strong, but my prediction right now is some of these headwinds are going to start catching up to us.”

Big Tech’s “efficiency” push has been a key driver of the recent graduate job-hunting slump. Recent research from Apollo Global Management’s chief economist Torsten Sløk shows that employment in the Magnificent Seven tech cohort had increased at 13% or higher from 2011 to 2021. In the past three years, employment gains for the group were only around 3% in any given year. And these are the big, wealthy companies that are still growing and driving S&P 500 earnings. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)