Labor Market Collapse: Long-Term Unemployment Hits 3rd-Highest Since the Great Recession and COVID
The August jobs report looks reassuring on the surface, but one overlooked BLS figure tells a very different story about where the labor market is actually heading and what it means for your portfolio.
The labor market can look healthy in a headline while deteriorating underneath. The August jobs report showed payrolls increased by 162,000, while the unemployment rate held at 4.1%, numbers that hardly suggest an economy in trouble.
But the Bureau of Labor Statistics also reported that 1.93 million Americans had been unemployed for at least 27 weeks. That figure is key because long-term unemployment tends to reveal whether joblessness is becoming entrenched rather than merely reflecting people between jobs. For investors, that dichotomy is becoming harder to ignore.
Long-Term Unemployment Is Moving In The Wrong Direction
The BLS defines long-term unemployment as being jobless for 27 weeks or longer. In August, that group reached 1.93 million, up from 1.77 million in July. More importantly, long-term unemployed workers represented 27.0% of all unemployed Americans, up from 25.5% in July.
That is a problem. The share has climbed from just 17.8% in February 2023 to 27.0% today. In other words, more than one out of every four unemployed Americans has now been looking for work for at least six months. The BLS reported that the average duration of unemployment reached 26.3 weeks in August, up from 24.9 weeks in July.
And this isn’t a one-month blip. Long-term unemployment has been on an upward trend since its February 2023 low.
The Labor Market Has A Deeper Problem
The contrast with the headline unemployment rate is striking. The unemployment rate remains at a relatively contained 4.1%, and payroll employment increased by 162,000 in August. Yet the share of unemployed people stuck outside the workforce for six months or longer is approaching levels associated with major economic downturns.
Surprisingly, the broader underemployment picture isn’t as severe. The BLS’s U-6 measure, which includes unemployed workers, marginally attached workers, and people working part time for economic reasons, fell to 7.7% in August from 7.9% in July. Part-time workers who wanted full-time jobs also declined by 414,000 to 4.4 million.
That makes the long-term unemployment increase even more important. The weakness is concentrated among workers who have already been unable to find a job for an extended period.
What It Means For Investors
A weakening labor market eventually becomes a consumer problem. Workers who remain unemployed for months lose income, draw down savings, and reduce discretionary spending. That can pressure everything from restaurants and retailers to travel and housing. Businesses facing weaker demand may then become more cautious about hiring, creating a feedback loop that can make an initially modest slowdown harder to reverse.
Investors should therefore look beyond the headline 4.1% unemployment rate. The direction of long-term unemployment arguably tells you more about whether today’s labor-market softness is temporary or becoming entrenched.
Obviously, one month’s increase does not establish a recession. Payrolls are still growing, and U-6 unemployment actually improved in August. But the trend is what is important: long-term unemployment has risen sharply from 17.8% of unemployment in 2023 to 27% today.
Key Takeaway
In short, the August labor report offers investors a reason to be more cautious and selective. The economy is still adding jobs, but 1.93 million Americans have now been unemployed for 27 weeks or longer, and that group represents more than a quarter of all unemployed workers.
The number isn’t one to start panicking over, but investors should treat it as a warning that the labor market is weaker beneath the surface than the 4.1% unemployment rate suggests. Companies dependent on resilient consumer spending require more due diligence today, especially if long-term unemployment keeps climbing.
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After two decades of patrolling the dark corners of suburbia as a police officer, Rich Duprey hung up his badge and gun to begin writing full time about stocks and investing. For the past 20 years, he’s been cruising the markets looking for companies to lock up as long-term holdings in a portfolio while writing extensively on the broad sectors of consumer goods, technology, and industrials. Because his experience isn’t from the typical financial analyst track, Rich is able to break down complex topics into understandable and useful action points for the average investor. His writings have appeared on The Motley Fool, InvestorPlace, Yahoo! Finance, Money Morning, and, of course, 24/7 Wall St. He has been featured in both U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, and USA Today.
