Flash Report: Unemployment Flows Point to Modestly Softer Labor Market Conditions in February

Key Takeaways

• The unemployment rate slipped from 4.1% in December to 4.0% in January, its lowest level since May. (See the Bureau of Labor Statistics’ Employment Situation release data in FRED.)
• Several indicators point to a stronger labor market: higher number of unemployed people finding jobs, more people joining the labor force to seek work, and fewer unemployed people leaving the labor force.
• A declining unemployment rate, coupled with a low level of job separations and an increase in job finding, marks an improvement relative to the last 12 months.

This analysis focuses on how potential flows into and out of unemployment in January affected the overall unemployment rate.

By breaking down the unemployment rate change into key components, we gain a better sense of labor market conditions. (For information on this method, see Maximiliano Dvorkin and Serdar Ozkan’s St. Louis Fed On the Economy blog post “The Recent Ins and Outs of Unemployment: Using Flows to Study Labor Market Dynamics.”)

Data Highlights

• As in the previous month, January’s decline in unemployment was primarily driven by a marked increase in unemployed workers finding jobs. (See the table below.)
• Transitions into the labor force (i.e., people previously not in the labor force who are now seeking work) rose, while fewer unemployed workers exited the labor force. (See the table below.) This movement in and out of the labor force is indicative of further strengthening in the labor market.
• Despite concerns last summer about a weakening labor market, employment conditions have remained historically robust in the last six months and improved further in January—lending credence to the prospect of a soft landing.