Don’t look now but the unemployment rate creeped up again to 3.9 percent in April, the latest data from the Bureau of Labor Statistics shows, rising from its April 2023 low of 3.4 percent.

With it, the unemployment level itself is up 777,000 to nearly 6.5 million. A year ago, it was 5.7 million.

The employment side of the equation, the last peak was in Nov. 2023 in BLS’ household survey, at 161.86 million, and is now down to about 161.49 million in April, as it still keeps clanking around that area. This could be one of the reasons consumer inflation is stickier than usual at 3.5 percent in March, down from its June 2022 level of 9.1 percent.

Usually unemployment tends to go up as the economy overheats and inflation cools down. Now, it’s up some again, about 777,000, but the persistent bubbling of inflation could indicate that cycle is being prolonged presently.

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That being the situation, since the unemployment rate itself has not risen too dramatically, the Federal Reserve recently saw fit to keep the Federal Funds Rate elevated at 5.25 percent to 5.5 percent at its May 1 meeting.

In essence, until labor markets capitulate and/or inflation gets back towards its target of 2 percent, there is not much of a case lowering interest rates, as much pain as they are causing — the economy had been operating on near-zero interest rates following the Covid pandemic and then the Fed kept rates there for too long.

Inflation was already at 7.5 percent when the Russia invaded Ukraine in Feb. 2022, which finally prompted the Fed to begin hiking rates in earnest as the global supply crisis worsened.

In truth, it might take another recession before the situation on inflation and interest rates can be remedied, unfortunately. Historically, that has certainly been true, even as President Joe Biden keeps fantasizing about the so-called “soft landing” in his re-election bid. We’ll see.

In his State of the Union address on March 7, President Joe Biden noted the slowdown in inflation and promised that “The landing is and will be soft.” He might be right. In its Dec. 2023 economic projections, the Federal Reserve stated the unemployment rate would hit 4.1 percent this year.

That’s an implied another 400,000 more unemployed this year, taking the number up to 6.86 million unemployed, with an overall increase 1.16 million in unemployment. Compared to the financial crisis and Great Recession of 2008 and 2009, and the 2020 Covid recession, when 8 million and 25 million of jobs were lost, respectively, a garden variety recession would certainly be a change of pace from the past 15 years, if we get one at all.

That would also be smaller than when the dotcom bubble popped in the late 1990s and a recession was experienced in 2001 and 2002. Then, almost 2.1 million jobs were lost from peak employment in March 2001 to the bottom of the labor market in Jan. 2002, from almost 137.8 million down to 135.7 million, although the unemployment rate would not peak until June 2003 at 6.3 percent.

Or it could be worse. At the high end of its projections, the Fed sees unemployment getting as high as 4.5 percent in 2024 and 4.7 percent in 2025. If so, that could mean another 1.1 million jobs lost this year, and a further 300,000 or so in 2025, taking the overall correction up to 2.3 million jobs lost.

That makes recessions and slowdowns, although cyclical, a matter of magnitude — and time. The landing might indeed be soft compared to some other recessions, but you also might not find out about it for another year or two.

A good indicator to watch on that front remains the spread between 10-year and 2-year treasuries. This spread tends to invert prior to recessions, and then uninverts as the unemployment rate rises. At -0.29 percent as of this writing it has not yet uninverted, but is much above its -1.07 and -1.08 percent readings in March and July 2023, respectively.

And sure enough, as it edges closer to uninverting, the unemployment rate has started to slowly creep upward. In that time, unemployment has rising from 3.4 percent in April 2023 to its 3.9 percent level today. Whether we simply experience a slowdown or a recession might not matter too much politically to Biden—recessions are often called after the fact—what matters is how the American people are feeling about the economy. Right now, the answer isn’t good. As usual, stay tuned.

Robert Romano is the Vice President of Public Policy at Americans for Limited Government Foundation.

Cross-posted with The Daily Torch

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