Stimulus Update: How Long Can the Jobless Rate Stay at a Record Low?

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The labor market may be strong now, but will it last? 

In February, the Department of Labor released some very positive news. Not only did the economy add more than 500,000 jobs the previous month, but the national unemployment rate fell to 3.4%. That’s the lowest level on record in 54 years, and it’s even lower than where the jobless rate sat prior to the start of the pandemic.

Of course, record low unemployment is a good thing in theory — but not in the context of stimulus aid. Inflation has been surging for well over a year now. And at this point, many Americans are desperate to see stimulus checks hit their bank accounts. That’s unlikely to happen anytime soon, though, given that the jobless rate is so low.

But unemployment levels are apt to climb at some point. The question is, when?

Why the jobless rate could rise

Although U.S. jobs seem plentiful right now, it’s hard to overlook the numerous reports of layoffs we’ve seen come down the pike since the start of 2023. From big players in the tech space like Microsoft to non-tech companies like Disney, many large employers have already taken steps to reduce their headcount. And if that trend continues, we could see the jobless rate tick upward in 2023.

There’s also another factor to consider — the labor force participation rate. The national unemployment rate isn’t calculated based on the number of people who are out of work. Rather, it’s calculated based on the number of people who are out of work but don’t want to be.

In January, the labor force participation rate was 62.4%. But if more people decide they want to work and can’t find jobs, the unemployment rate could rise.

And we may see older Americans in particular try to return to the workforce and struggle to do so in 2023. Many retirees are feeling the strain of inflation, so it’s conceivable that some might try to rejoin the labor force to shore up their finances. But it can be difficult for older job applicants to get hired due to a host of factors, age being one of them (while it’s illegal to discriminate against a job applicant based on age, it’s also a very difficult thing to prove).

Will an uptick in unemployment lead to stimulus aid?

The quick answer is that it could. The longer answer is that the national jobless rate would really need to rise dramatically in order to justify a round of stimulus checks at this point. And since unemployment is sitting at a 54-year low, it’s pretty fair to assume that we’re not going to be looking at broad stimulus aid anytime soon.

Of course, that’s not what Americans who are racking up credit card debt by the day to cope with inflation want to hear. But the reality is that high levels of inflation alone aren’t enough to spur stimulus aid. If anything, a stimulus round might only make the problem of inflation even worse.

The jobless rate is unlikely to stay this low forever. But ideally, it will take a long time until it’s at a point where another round of stimulus checks is even a discussion.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Microsoft. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.

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