An analysis said the U.S. labor market is showing structural sources of instability, including a rising share of long-term unemployed despite an improvement in the official unemployment rate. With a drop in the labor force participation rate raising the possibility that actual job conditions are weaker than the unemployment rate suggests, the report said a real cooling in the job market could become an important variable in future rate-cut decisions.

Sh Suhyup Bank's risk management group made the assessment on Monday in the September issue of its risk assessment report, "House View."

The report said the U.S. unemployment rate fell for a second straight month to 4.1 percent in July this year. But an adjusted unemployment rate calculated by assuming the participation rate at the average level of the previous two years was 5.5 percent, 1.4 percentage points higher than the official rate.

That suggests the official unemployment rate may have appeared lower than actual job conditions because people who gave up looking for work were excluded from the labor force. It is therefore difficult to conclude the labor market has improved based on a falling jobless rate alone, the report said.

Suhyup Bank used an Effective Unemployment Indicator, or EUI, in the report to examine risks in the U.S. labor market. EUI is a framework that jointly analyzes the relationship between an adjusted unemployment rate that reflects a lower participation rate and the share of long-term unemployment relative to the job openings rate.

An expanding share of long-term unemployed was also cited as a key risk factor. U.S. companies' job openings rate has held in a 4.1 to 4.5 percent range since the third quarter of 2024, but the share of those unemployed for 27 weeks or longer rose to 26.7 percent from 22 percent over the same period.

The increase in long-term unemployment even as hiring demand stays at a certain level is interpreted as meaning that structural imbalances in the labor market, such as mismatches between job openings and job seekers, are worsening.

In particular, the report said it has been observed for five consecutive quarters since the third quarter of 2025 that long-term unemployed people continue their job search but fail to find employment.

Suhyup Bank said that, taking these indicators together, the underlying condition of the U.S. labor market may be more fragile than the official unemployment rate indicates. If the cooling in the labor market persists, it could also affect decisions on rate cuts, the report said.

Yang Ki-tae (양기태), an executive vice president at Suhyup Bank, said, "The recent U.S. labor market may have actual job conditions that are more fragile than the official unemployment rate." He added, "There is a need to look comprehensively at labor force participation and long-term unemployment indicators to understand the real situation in the labor market."

He added, "As structural problems such as mismatches between job openings and job seekers persist, a real cooling in the labor market could also serve as an important variable in decisions on rate cuts."