New research shows that employment trends among people ages 35 to 44 are most correlated with changes in the national employment rate.
The unemployment rate is a key barometer of the health of the U.S. labor market. It has taken on renewed importance in the past year as an indicator that highlights both worker demand from employers and the labor supply as curtailed immigration and retirements restrict available workers.
A move up or down by tenths or even hundredths of a percentage point has the power to move markets and revise economic expectations. That means forecasting the future unemployment rate has become a high-stakes endeavor. As economists and policymakers search for better predictive signals, a good one may be hiding in plain sight: employment trends among people ages 35 to 44, according to recent research published by Kevin Rinz, senior research economist at the Federal Reserve Bank of Cleveland.
Economists typically view labor trends among people ages 25-54 as a bellwether of broader labor trends because this population cohort is in its prime working years following any postsecondary schooling, but still years away from retirement. Yet, studying the “primest of prime-age workers,” or those in the middle ages of this cohort, is even more revealing, Rinz found.
“Those workers historically have had a somewhat stronger relationship with changes in unemployment rate,” he says.
If unemployment among workers ages 35 to 44 increases by one percentage point, the overall unemployment rate typically jumps by 0.1 percentage point a month later. Four months later, the national unemployment rate typically shows an increase of 0.3 percentage points.
The reverse is also true. The unemployment rate for workers ages 35-44 was 3.1% in April, lower than the national average of 4.3%. It has been trending down for the past three months, which bodes well for the national rate, based on Rinz’s research.
The Bureau of Labor Statistics provides tools that break out unemployment by age, race, education, and other attributes. While the national unemployment rate is most correlated to trends among “super” prime-age workers, Rinz found that changes in the employment rates of some other worker cohorts, such as Black Americans and employees over age 25 who didn’t complete high school, also hold predictive power.
These worker groups tend to experience changes in the business cycle more intensely than other workers. Black unemployment, for example, shot up to 16.9% in April 2020 as the Covid pandemic took hold, while the national average was 14.8%.
Black Americans had an unemployment rate of 7.3% in April, while the rate among people who didn’t complete high school was 6.4%. Both rates rose in the month, and both groups have seen more erratic employment trends this year.
Some economists expect the U.S. unemployment rate to rise in coming months if the Iran war continues, since companies pressured by high energy prices might look to cut jobs. Rinz’s research points to an early-warning system that may flag trouble ahead.
Write to Megan Leonhardt at megan.leonhardt@barrons.com