Temporary layoffs don’t signal a weak US labor market

A surge in temporary layoffs drove another rise in the unemployment rate in July, stoking recession concerns and fears that the Federal Reserve is behind the curve. We’re sceptical of these concerns and believe the weakness in the labor market is overstated. While the labor market is cooling, it is not on a verge of a collapse.

What you will learn:

• Using microdata from the Bureau of Labor Statistics, we find the increase in temporary layoffs was concentrated in just four industries and that seasonal noise in the labor survey was not removed during the seasonal adjustment process. We expect some of this to be reversed next month, helping to push the unemployment rate back to 4.2% in August.
• Permanent job losers remain at low levels as employers keep ahold of workers that they struggled to hire over the past few years. Encouragingly, permanent job losses in manufacturing, retail trade, and construction are trending lower on an annual basis.