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W Leggett
Key points
- January's unemployment rate was just 3.4%.
- That's the lowest number on record in 54 years.
- It doesn't account for people who were pushed out of the labor force during and in the wake of the pandemic.
If you take a look at today's unemployment numbers, it would appear as though the U.S. economy is in an utterly fantastic place. In fact, one reason some financial experts have started to scale back their recession warnings is that the national jobless rate is so low, and the labor market is so solid and loaded with job openings.
But while there's no arguing today's unemployment levels, it may be worth digging into that data a little deeper. The jobless rate alone may not exactly tell the whole story of what the labor market and economy truly look like.
One trend we may be forgetting
In January, the national unemployment rate dropped to 3.4%. That's the lowest reading on record in 54 years. But is the economy really in such a strong place?
Let's think about what the unemployment rate measures. Remember, it accounts for the number of people who want to work but can't find work. That's reasonable enough, right? But one thing today's seemingly low jobless rate doesn't account for is the number of people who were pushed out of the workforce due to the pandemic, or in the wake of it.
When the COVID-19 crisis struck in early 2020, a lot of older workers had to leave their jobs behind due to health-related concerns -- especially those whose work couldn't be performed remotely. And even once vaccines became widely available, a lot of older people with non-remote jobs were scared to put themselves in a position where they might get sick.
In fact, a Bloomberg report published in late 2021 found that over 3 million people retired early due to the pandemic. And that's something to take into context when discussing today's unemployment numbers.
It's true that the jobless rate is really low. But part of the reason for that may be due to the fact that the population of available workers shrunk in short order on the heels of a major crisis.
Or, to put it another way, let's say the 3 million workers who retired early due to the pandemic hadn't left the workforce. Would today's jobless rate be higher? Quite possibly.
Let's not get lulled into a false sense of security
Unemployment may not be a problem in the U.S. right now. But we shouldn't let our guard down with regard to the economy. Things still have the potential to take a turn for the worse, so everyone should be doing their part to shore up their finances.
Most importantly, every member of the workforce, regardless of age, should aim to have enough money in a savings account to cover a minimum of three months' worth of essential expenses. Consumers should also do their best to shed high-interest debt, like that of the credit card variety. Having fewer outstanding obligations could make it easier to ride out a recession should a downturn hit.
All told, recession fears may be waning, at least for now. But today's unemployment rate is somewhat misleading. And it's important to recognize that in the context of the greater economic picture.
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