U.S. Unemployment Rate Gap Between Recent and All College Graduates Hits New High Since the 1990s

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The unemployment rate for recent college graduates widened to 2.8% above that of the broader population with college degrees, according to recent data from the Federal Reserve Bank of New York. This figure marks a historical high since the 1990s (excluding the pandemic period), highlighting the ongoing challenges faced by recent graduates in finding employment.

(The Unemployment Rate Gap Hits New High Since the 1990s. Source: Federal Reserve Bank of New York, TrendForce)

 

Since mid-2023, the market has begun to recognize signs that the U.S. labor market might be transitioning from a slowdown to outright deterioration. Most notably, the unemployment rate surged to a nearly three-year high in June, approaching levels that could trigger the “Sahm Rule,” a widely recognized indicator of economic recession.

(The Sahm Rule Is on the Verge of Being Triggered. Source: Fred, TrendForce)

 

Additionally, since mid-2022, job vacancy rates have steadily declined, flattening the slope of the “Beveridge Curve.” This trend has fueled concerns about a potential scenario where vacancy rates stagnate while unemployment continues to rise.

(The Beveridge Curve Is Approaching a Flattening Turning Point. Source: BLS, TrendForce)

 

The difficulty recent graduates face in securing jobs likely reflects a significant reduction in demand for entry-level talent. During the early post-pandemic period, the surge in market demand drove companies to aggressively hire to meet increased needs. However, with the Federal Reserve implementing aggressive rate hikes to combat inflation in recent years, companies have been grappling with slowing revenue growth and rising costs, prompting widespread layoffs to cut back on overhiring during the boom.

According to the Bureau of Labor Statistics (BLS), layoff levels remain below pre-pandemic benchmarks. Yet, heightened layoff risks have eroded job security for current employees, discouraging them from voluntarily leaving their jobs to seek better opportunities. This reduced mobility has further constrained the job market, making it increasingly difficult for recent graduates to secure suitable positions.

The Fed is well aware of these challenges. In its late-July meeting, the Fed acknowledged the labor market slowdown and subsequently announced a 50-basis-point rate cut in September to support the job market.

In the months that followed, the unemployment rate fell from its mid-year peak of 4.3% to 4.1%, while nonfarm payroll growth remained modest. Meanwhile, the upward trend in initial jobless claims has also paused, alleviating market concerns about labor market deterioration.

Overall, we view these trends as evidence of the U.S. labor market moving toward equilibrium. However, a single data point cannot determine whether this balance will persist or give way to further deterioration. Close monitoring of indicators such as U.S. initial jobless claims, U.S. nonfarm payrolls, and layoff levels (and rates) will be critical in assessing future labor market conditions.