US unemployment rate hits lowest level since 1969: what does this mean for the economy?

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The chairman of the Federal Reserve ( Fed), the central bank of the United States, Jerome Powell , said yesterday, Tuesday, 7, that recent indicators show a reversal of the trend of cooling of economic activity, in part due to the warmer winter than expected.

Powell added that inflationary pressure is higher than expected at the last meeting of the Federal Open Market Committee (FOMC) and that the US job market is extremely tight, with the unemployment rate at the lowest level since 1969. Powell also said that it is possible to identify the effects of monetary tightening on demand in sectors that are more sensitive to interest rates, but that it will take time for all the effects of monetary tightening to be perceived, especially on inflation.

unemployment rate at lowest level since 1969

The Fed chairman said that the monetary authority is not seeking to raise the unemployment rate in the United States, but rather to realign supply and demand to bring inflation back to the target of 2% per year. Powell said that the Fed is aware that its monetary tightening actions have a lagged effect and that it is monitoring the impacts on the US economy for the next decisions to raise interest rates. Powell warned that the consequences of not raising the debt ceiling could be extraordinarily adverse and cause lasting damage.

Questioned about the effects of a possible US default, Powell again stated that a solution needs to be found as in the past, with the expansion of the US debt ceiling. He highlighted that he will do everything possible to control inflation and that this could mean additional rate increases, but that there is no other tool.

Now let's understand what the unemployment rate is and what is its relationship with a recession .

The unemployment rate and economic activity are closely related. In periods of recession or economic slowdown, the unemployment rate tends to increase, while in periods of economic expansion, the unemployment rate tends to decrease.

This is because, during a period of recession, companies tend to reduce production and investment, which leads to a decrease in the demand for labor and, consequently, to an increase in the unemployment rate. Likewise, during a period of economic expansion, companies tend to increase production and investment, which leads to an increase in the demand for labor and a decrease in the unemployment rate.

Reception peaks, that is, periods of greater economic slowdown or recession, are generally associated with peaks in the unemployment rate. This is because during these times companies tend to cut jobs to cut costs and survive the economic downturn. The opposite can also be observed in periods of economic recovery, when there is a drop in the unemployment rate.

It is important to emphasize that the relationship between the unemployment rate and economic activity may not be immediate, since the effects of economic activity on the unemployment rate may take some time to be perceived. In addition, other factors such as government policies, changes in the structure of the labor market and technology can also influence the unemployment rate.

Unemployment Rate

To better understand, there are different types of unemployment that can occur in an economy, each with its own causes and characteristics. Here are the four main types of unemployment: Natural unemployment: This type of unemployment is caused by long-term structural factors in the economy and is considered a normal unemployment rate, as there will always be a certain level of unemployment in any economy. Some examples of structural factors that can lead to a natural rate of unemployment include technological change, globalization, demography and government policies. The natural unemployment rate is therefore determined by the interaction of these factors.

Cyclical unemployment: This type of unemployment is caused by short-term fluctuations in the economy, such as recessions and economic downturns. When the economy is in recession, companies tend to hire fewer workers, which leads to an increase in unemployment. As the economy recovers, companies tend to hire more workers, which leads to a drop in unemployment. The cyclical unemployment rate, therefore, varies with fluctuations in the economy.

Structural unemployment: This type of unemployment occurs when there is a discrepancy between the skills and qualifications of workers and the needs of the labor market. For example, when the economy undergoes structural changes, such as shifting from a manufacturing-based to a service-based economy, there may be a shortage of skilled workers to fill the new jobs available. Structural unemployment, therefore, is caused by long-term structural factors in the economy.

Frictional unemployment: This type of unemployment occurs when workers are in transition between jobs, that is, when they are looking for a new job or changing careers. Frictional unemployment is considered a type of temporary unemployment and is healthy for the economy as it indicates that workers are moving to better jobs that are more suited to their skills. The frictional unemployment rate depends on how easily workers can find new jobs and the level of economic activity in general.

The unemployment rate in an economy is influenced by many factors, including structural factors, cyclical fluctuations, mismatches between workers' skills and labor market needs, and the ease with which workers can find new jobs. Currently, we are experiencing all possible types of “unemployment”, paradigm shifts, dissatisfied people and technologies that have already eliminated thousands of jobs, and this is just the beginning. We are facing a black swan in terms of employability, skills and education.

As I always say, the world is changing very fast, and we need to change with it or we will be left behind. I hope this information adds something to everyone!