Apollo's Chief Economist: Beware of the "trap" of US unemployment rates!

According to Torsten Slok, Chief Economist at Apollo Global Management, the recent rise in unemployment is due to the expansion of the immigrant population increasing the labor supply in the United States, rather than widespread job cuts. Apollo is one of the world's largest private equity firms with assets under management of $696 billion.

Based on data from the U.S. Department of Labor, the unemployment rate has been rising continuously over the past five months, currently reaching 4.3%. This trend has raised concerns about an impending economic recession.

However, as Slok pointed out, there has not been a significant increase in layoffs. In fact, the number of layoffs in the U.S. this year has been relatively stable, ranging from about 1.5 million to 1.6 million people per month. The number of layoffs in June was the lowest so far this year.

On the contrary, the number of people joining the labor force is increasing, even if they are currently unemployed. Slok wrote in an email, "The reason for the rise in the unemployment rate is not layoffs, but an increase in the labor supply due to immigration."

According to data from the Congressional Budget Office, the net immigration to the United States in 2022 was 2.6 million people. In 2023, this number jumped to 3.3 million people. The forecast for 2024 shows that the net immigration number will remain at the same level.

For a long time, immigrants have supported the development of the U.S. economy by filling vacancies in the tightened labor market after the COVID-19 pandemic. According to research from the Kansas City Fed, immigrants have also helped alleviate an overheated labor market. The research also points out that the increase in the immigrant population has slowed down the wage growth rate, although it helps control inflation in the short term, it damages the income potential of workers in the long run.

The latest employment data released in July triggered what economists call the Sahm Rule, which states that if the three-month rolling average of the unemployment rate is at least 0.5% higher than the lowest point of the previous 12 months, the economy is at the beginning of a recession. Many economists, including Slok, have noticed this, but have set it aside.

Slok said, "The Sahm Rule is designed to address a decrease in labor demand, not an increase in immigration." The inventor of the Sahm Rule, Claudia Sahm, also agrees with this view.

When asked about the Sahm Rule, Powell mentioned similar views last month. Powell referred to the rule as a "statistical regularity" rather than an "economic rule."

Slok stated, "Powell said we should focus on all data, not just one data point. All the data combined still shows a robust economy."

In an article published last week, Slok mentioned that consumer spending levels are high in sectors such as air travel and dining, indicating an economic slowdown but not a collapse, and the possibility of a soft landing. However, there are still some notable changes in consumer behavior that suggest a more challenging economic period may be ahead. Retail spending has been unstable in the past two months, and credit card delinquency rates have risen throughout the second quarter, which is not conducive to the health of the U.S. consumer-driven economy