'Functional Unemployment' Increases in May, Says Ludwig Institute

The Ludwig Institute for Shared Economic Prosperity (LISEP) reported that the "functional unemployment" rate, measuring jobless individuals plus those in part-time or poverty-wage jobs, edged up to 24.3% in May, marking the fourth consecutive month above 24%, while the official BLS rate remained at 4.2%. LISEP's report indicates a stagnation in living-wage job opportunities, particularly affecting low- and middle-income workers, with mixed results across demographics: improvements for Black and Hispanic workers, but increases for White workers and women.

Analysis

The Ludwig Institute for Shared Economic Prosperity (LISEP) May report reveals a persistent challenge in the U.S. labor market, with its True Rate of Unemployment (TRU) edging up to 24.3%, marking the fourth consecutive month this measure of functional unemployment has remained at or exceeded 24%. This figure, which includes the jobless, those seeking but unable to find full-time employment, and individuals in poverty-wage jobs, presents a stark contrast to the official Bureau of Labor Statistics unemployment rate, static at 4.2%. LISEP's data signals a stagnation in the creation of jobs paying above poverty wages, disproportionately affecting low- and middle-income workers, whose wages are reportedly failing to keep pace with the rising cost of living, thereby intensifying financial hardship for many families. While May saw improvements in functional employment for men (TRU down 0.7 percentage points to 19.3%), Black workers (TRU down 0.7 percentage points to 26.0%), and Hispanic workers (TRU down 0.8 percentage points to 27.3%), the situation worsened for women (TRU up 1.3 percentage points to 29.9%) and White workers (TRU up 0.5 percentage points to 23.6%). This sustained high level of functional unemployment, despite stable official metrics, suggests underlying economic fragility and growing uncertainty, with potential adverse implications for consumer purchasing power and broader economic activity.

Key Decisions for Investors

• Investors should meticulously scrutinize upcoming consumer spending data and the performance of retail sectors, as the reported stagnation in living-wage jobs and eroding real incomes could significantly dampen demand, particularly among low- and middle-income segments.
• The considerable divergence between LISEP's TRU and official unemployment rates necessitates a cautious approach, looking beyond headline figures for a more nuanced understanding of labor market health and its potential impact on sectors reliant on broad consumer vitality.
• Given the persistent high functional unemployment and its strain on household finances, it may be prudent to assess exposures to sectors heavily dependent on discretionary spending and consider the heightened risk for companies whose revenues are closely tied to the economic well-being of low-to-middle-income consumers.