September Jobs Report Preview: Shutdown Averted

The labor market is on unsteady ground heading into the end of the year as downward revisions in the August jobs report and potential disruptions from strikes, rising oil prices, and a postponed shutdown battle pose a risk to the job market. The September jobs report from the Bureau of Labor Statistics (BLS) narrowly avoided being delayed by the government shutdown, though the risk has not been averted in the coming months. We expect the September jobs report to show that we’re likely to escape 2023 without a recession, despite the risks on the horizon.

Here are three trends we'll be watching for in the September jobs report:

Unemployment Insurance Claims Surge for Tech, Affecting Asian Workers

Unemployment data relies on two different definitions of unemployment. Traditionally, unemployment from the Current Population Survey (defined as respondents who are not employed but actively looking for a job) is regarded as the more reliable indicator. But unemployment insurance claims (an administrative count of non-employed workers who apply to and/or receive unemployment insurance benefits) are another useful indicator. Measures based on UI claims suffer from issues like differences in eligibility over time and by state and processing efficacy (especially during the pandemic).

Unemployment insurance claimants have surged over the last year, rising most for industries like information and professional & business services. As of August 2023, UI claimants in the information industry have more than doubled over the last year, rising 109 percent, the largest percent increase of any industry. Coming in second place is professional/scientific/technical services where UI claimants have increased 62 percent year-over-year. Information and professional/scientific/technical services claimants are now at levels last seen pre-pandemic in 2013 and 2014, respectively.

While layoffs in these industries have crept back down after a surge at the start of 2023, UI claimants continue to rise, perhaps signaling that while layoffs are low, hiring also remains too slow to fully absorb this new stock of laid-off employees.

The surge in unemployment insurance claims in tech has disproportionately impacted Asian and Asian American workers. Asian UI claimants have spiked 64 percent year-over-year in August 2023, its highest post-pandemic level since 2011, compared to a 30 percent increase for white employees.

Interestingly, this jump is much more muted in survey-based data. The three-month trailing average of the Asian unemployment level is up only 6 percent year-over-year. Similarly, the Asian unemployment rate from the CPS is 3.1 percent, up modestly from 2.8 percent a year ago, suggesting perhaps that the survey’s sample size may have difficulty picking up an increase in unemployment among the Asian population.

Unemployment Rates Rise Earlier and Faster in Recession for Workers of Color

This also raises the question of whether unemployment rates for different racial or ethnic groups exhibit different patterns ahead of recessions. Asian unemployment rate data only stretches back to 2000, which only gives a few recessions to examine, including the pandemic recession, which is not traditionally predictable by economic indicators. But for Black and Hispanic or Latino unemployment rates, we can see what their pattern is prior to past recession stretching back to 1973.

Across six recessions—starting in 1973, 1980, 1981, 1990, 2001 and 2007—Black and Hispanic or Latino unemployment rates do appear to start rising a few months prior to white unemployment rates. For example, in the three months before the recession begins, Black or African American unemployment rates rise by 0.6 percentage points on average and Hispanic or Latino unemployment rises by 0.3 percentage points while white unemployment rises only 0.1 percentage point.

Additionally, unemployment rates surge more for Black and Hispanic or Latino workers, rising 3.4 and 2.6 percentage points respectively in the first year of the recession vs. 2.1 percentage points for white workers. This seems to lend credence to the idea that workers of color may be particularly vulnerable to the swings of the business cycle—the first to be fired and last to be rehired.

How Does the Sahm Rule Work for Unemployment Rates by Race/Ethnicity?

In the last few months, we have seen some increases in the unemployment rates for Black and Hispanic or Latino workers, but are they predictive of a recession? The Sahm rule is a common recession indicator that triggers when the 3-month trailing average of the national unemployment rate rises by 0.5 percentage points over its prior 12-month minimum. Applying this rule to the unemployment rates for white, Black or African American, Hispanic or Latino and Asian workers shows that the Black or African American and Hispanic or Latino unemployment rates have both exceeded the threshold in the last year. However, the unemployment rates for workers of color are extremely volatile which make them difficult to use predictively.

Looking back at the unemployment rates by race or ethnicity since 1972: all correctly trigger for the recessions since 1972, but they also incorrectly trigger very often. For example, the Black unemployment rate has triggered the Sahm rule 23 times since 1972, but only 7 of those have corresponded to a recession, while the other 16 times have not resulted in an imminent recession.

Precision of Sahm Rule Indicator with 0.5 Percentage Point Threshold Using Unemployment Rates by Race or Ethnicity

Looking back at the last 50 years graphically, the chart below shows that unemployment rates for workers of color are much more volatile than that of white workers, resulting in many more false positives where spikes in unemployment do not result in recession. Ultimately, the recent rise in the Black and Hispanic or Latino unemployment rates are concerning but are not enough by themselves to indicate that a recession is imminent given how volatile these measures are.