Mark Zandi, Chief Economist at Moody’s Analytics, recently shared insights on CNBC’s “The Exchange” about an intriguing economic phenomenon: rising unemployment rates despite steady job creation.
Understanding the Paradox
Typically, when an economy creates jobs consistently, we expect the unemployment rate to fall. However, Zandi points out that the U.S. is experiencing something different:
“If you look at year-over-year real GDP growth through the second quarter of the year, 3% growth. But yet, over that past year, the unemployment rate has risen a half a percentage point.”
This unusual pattern suggests that the economy’s potential growth rate – the rate at which it can grow without causing inflation – might be higher than many economists believe.
The Immigration Factor
A key driver of this paradox is the surge in labor force growth, largely attributed to immigration. Zandi explains:
“Right now it’s higher than 3% because labor force growth is booming, because we have a lot of immigrants coming into the country taking jobs. And so, labor force growth isn’t what it typically is, a half a point, it’s one and a half to two percentage points.”
Moody’s Analytics Chief Economist @Markzandi tells @KellyCNBC on @CNBCTheExchange to discuss why the Fed risks making a policy mistake if it doesn’t start cutting rates in September. pic.twitter.com/urDe52Oj0v
— The Exchange (@CNBCTheExchange) July 26, 2024
This influx of workers is expanding the labor pool faster than usual, allowing for job growth without reducing unemployment rates.
Productivity Boost
Another factor Zandi highlights is productivity growth. While he’s uncertain about its sustainability, current productivity growth is estimated at around 2%. When combined with the expanded labor force, this pushes the economy’s potential growth rate above 3%.
Job Creation vs. Unemployment
The relationship between job creation and unemployment rates has shifted. Zandi notes:
“And if you’d asked me two years ago if you were getting 150, 200,000 jobs a month, what would be happening with unemployment? I’d say it’d be going down, not up.”
Full Employment
Despite the rising unemployment rate, Zandi believes the economy is at full employment. This suggests that the current situation reflects a healthy, growing economy rather than a cause for concern.
Looking Ahead
The interplay between immigration, productivity, and job creation is creating a new economic narrative that challenges conventional wisdom.
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While a higher potential growth rate is generally positive, the entire discussion glosses over Americans losing jobs to the mass influx of immigrant crossing our borders every day.
