GS Now Somewhat Less Confident Of U/E Rate Reverting

Goldman Sachs yesterday afternoon noted that just-released BLS microdata “make us somewhat less confident that most of the July increase in the unemployment rate will revert in the near-term.”

• Recall that the u/e rate rose another 0.2pp to 4.3% in July but over 70% of the increase came from a spike in temporary layoffs. It was good news as they are less cyclical than permanent layoffs but “also a bit mysterious” because the BLS said they weren’t caused by Hurricane Beryl.
• Instead, their analysis of microdata also finds that “Hurricane Beryl in Texas was indeed not the culprit”.
• “Around 35% of the increase in temporary layoffs—or about 4bp of the 20bp rise in the unemployment rate in July—took place in Midwestern states with a large number of autoworkers, and both this and the industry pattern suggest that summer auto plant retooling shutdowns likely contributed. But the largest increase in temporary layoffs took place in California and in the leisure and hospitality and construction industries and related occupations, and it is not clear to us what caused these layoffs.”
• “These patterns make us somewhat less confident that most of the July increase in the unemployment rate will revert in the near-term. That said, temporary layoffs are a noisy indicator, and other indicators continue to suggest that layoffs remain low. Initial claims fell this morning and remain low, the layoff rate in the JOLTS survey remains low, and our real-time layoff indicator based on WARN notices is also low.”