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The unemployment rate may be higher<\/a>, but it\u2019s because there are more workers, not fewer jobs.\u00a0<\/p>\n The recent rise in unemployment<\/a> is because an immigration<\/a> surge has expanded the labor supply in the U.S. not because there have been widespread job cuts, according to Apollo<\/a> Global Management chief economist Torsten Slok. Apollo<\/a> is one of the world\u2019s largest private equity firms with $696 billion in assets under management<\/a>.\u00a0\u00a0<\/p>\n According to data from the Bureau of Labor Statistics, the unemployment rate has increased for the past five months to its current level of 4.3%<\/a>. That trend led to concerns a recession<\/a> was on the horizon. A rise in the unemployment rate often presages a recession, as companies lay off workers in an effort to cut costs and brace themselves for tough times ahead.<\/p>\n However, Slok points out there haven\u2019t been mass layoffs. In fact, layoffs have been relatively flat for the year, hovering between roughly 1.5 million to 1.6 million a month. June even had the lowest number of layoffs of the year.\u00a0<\/p>\n Instead there are more people joining the labor force\u2014even if they aren\u2019t working at the moment. \u201cThe source of the rise in the unemployment rate is not job cuts but a rise in labor supply because of rising immigration,\u201d Slok wrote in an email.\u00a0<\/p>\n In 2022, net immigration to the U.S. amounted to 2.6 million people, according<\/a> to the Congressional Budget Office. In 2023, that number jumped to 3.3 million. Forecasts for 2024 expect the same levels of net immigration.\u00a0<\/p>\n For a long time immigration<\/a> helped prop up<\/a> the U.S. economy by filling labor shortages during the tight labor market in the aftermath of the pandemic. Immigrants were employed<\/a>, getting paid, and spending that money on goods and services, keeping the economy chugging along<\/a> when it risked faltering. Immigrants also helped cool an overheated labor market, according<\/a> to research from the Kansas City Fed. However, the uptick in immigration also reduced wage growth, according to the Kansas City Fed\u2019s research, which while helpful<\/a> to keep inflation from getting out of hand in the short-term, harms workers\u2019 earning potential over the long term.\u00a0<\/p>\n The most recent round of employment data released in July triggered what economists call the Sahm rule<\/a>, which states that if the three-month rolling average of the unemployment rate is at least 0.5% higher than the 12-month low, the economy is in the start of a recession. A fact that many economists, Slok among them noticed, yet brushed aside.\u00a0<\/p>\n \u201cThe Sahm rule was designed for a decline in labor demand, not a rise in immigration,\u201d Slok said.\u00a0<\/p>\n Claudia Sahm, the inventor<\/a> of the rule, agreed<\/a>. On Wednesday in an op-ed<\/a> for Bloomberg<\/em>, the chief economist at New Century Advisors explained that her rule doesn\u2019t distinguish between a rise in labor supply and a reduction in labor supply, which both raise the unemployment rate but for different reasons. \u201cThe rate will decrease once the jobs \u2018catch up\u2019 with the new job seekers and more workers allow the economy to grow more,\u201d she wrote. \u201cThe Sahm rule does not distinguish between these two dynamics, and can look more ominous when the labor force is expanding rapidly.\u201d<\/p>\n When asked about the Sahm rule last month, Federal Reserve chair Jerome Powell hinted at her points. Powell called the rule a \u201cstatistical regularity\u201d and not \u201can economic rule where it\u2019s telling you something must happen.\u201d\u00a0<\/p>\n Slok cited Powell\u2019s recommendation to look at more than just a single metric to properly assess the economy. Powell \u201csaid we should focus on the totality of the data, not just on one data point,\u201d Slok wrote. \u201cAnd the totality of the data still shows an economy that is solid.\u201d<\/p>\n In a blog post<\/a> published last week, Slok cited high levels of consumer spending on purchases like air travel and restaurants as signs the economy was slowing, but not cratering, and headed for a soft landing. Yet, there are still some notable changes in consumer behavior that indicate tougher economic times could be coming. Retail spending has been wobbly<\/a> in the past two months and credit card delinquencies rose<\/a> through the second quarter, neither of which bode well for the health of the U.S.\u2019s consumer driven economy.<\/p>\n<\/div>\n\nRecommended Newsletter: <\/strong>CEO Daily provides key context for the news leaders need to know from across the world of business. Every weekday morning, more than 125,000 readers trust CEO Daily for insights about\u2013and from inside\u2013the C-suite. Subscribe Now<\/a>.<\/div>\n