The "Anomaly" of Low U.S. Unemployment: Labor Market Differential Halved, Long-Term Unemployment Hits Three-Year High

TradingKey - Although the U.S. unemployment rate remains at a relatively low level of 4.2%, the seemingly calm or stable labor market is showing real cracks: consumer sentiment regarding job prospects has deteriorated, and the long-term unemployment rate has risen to a three-year high, with an upward trend persisting over the longer term.

According to data released on Tuesday (June 24) by The Conference Board, the percentage of consumers who believe job opportunities are abundant fell from 31.1% in May to 29.2%, reaching the lowest level since March 2021. Meanwhile, the percentage of consumers who perceive jobs as hard to find edged down slightly from 18.4% in May to 18.1%.

However, a labor market sentiment indicator calculated using the difference between these two figures — known as the Labor Market Differential — declined from 12.7 in May to 11.1, hitting its lowest level in nearly four years. This marks a near-halving from January's reading of 19.4.

Economists at Wells Fargo noted that consumers have not overlooked the weakening momentum in the job market.

Data from the U.S. Bureau of Labor Statistics shows that the proportion of unemployed Americans who have been jobless for 27 weeks or more — classified as long-term unemployed — rose to 23.5% in April, the highest in three years. Though this figure dropped to 20.4% in May, it has remained above 20% since April 2024.

Indeed Hiring Lab economist Allison Shrivastava pointed out that while monthly fluctuations in long-term unemployment statistics may contain some noise, the underlying trend is clearly rising. When considering other indicators such as layoff rates and quit rates, the overall picture of the U.S. labor market appears increasingly stagnant.

Shrivastava explained that although the current U.S. unemployment rate is indeed very low, all these data suggest that if you're already in the labor market, you might feel things are going well; but if you're trying to enter the labor market, you're likely facing a very difficult time — because no one is really laying people off, nor is there significant hiring taking place.

Considering the recent rise in continued jobless claims, JPMorgan Chase indicated that all these employment indicators point to a potential increase in the unemployment rate from May’s 4.2% to 4.3% when next week’s report is released.