A harbinger of China's economic decline is back.

The rate of urban youth unemployment has been a commonly-cited gauge of the country's financial stability. Last year — amid a stagnating economy and slackening labor market — it reached record highs.

In June 2023, the percentage of jobless 16- to 24-year-olds hit a peak of 21.3%. Then China stopped publishing the monthly numbers.

By December, the government had amended the data points to exclude students, releasing a much lower urban youth unemployment rate of 14.9%.

But as millions of college graduates have started looking for work, that figure is on the rise again. In August, the reformulated youth jobless rate hit a new high for the second month in a row of 18.8%.

It's no secret that China's economy is struggling. Local governments are saddled with debt. A real estate downturn has undermined a cornerstone of household wealth and eroded investor sentiment. Wary consumers are stockpiling cash. Major companies have cut staff.

Here's a look at why economists say China's youth jobless rate is a key indicator to watch.

What's driving China's youth unemployment?

Some of it is seasonal.

Youth unemployment tends to rise every summer, as students transition into the job market. But in China, the jobless rate has been exacerbated by an economic slowdown coupled with growing numbers of people pursuing higher education.

With a record 11.8 million college graduates this year, it will be hard for them all to find suitable jobs. Weak consumer and employer confidence have weighed on overall hiring, and industries that typically recruit young, college-educated workers —such as real estate, financial technology and for-profit education — have been hurt by new government regulations in recent years.

The more promising sectors, such as electric vehicles, biotechnology and artificial intelligence, often require specialized training in science and technology.

Meanwhile, fresh graduates have been reluctant to settle for blue-collar jobs or other work that doesn't align with their expectations. Some have preferred to "lie flat," a Chinese slang term used to describe young people opting to take a break from the labor market instead of competing.

"People that entered university four years ago may have planned for a future in finance or app development, but now need to get a job in manufacturing," said Bert Hofman, professor at the East Asian Institute at the National University of Singapore.

How does that compare with other nations?

Notably worse.

According to the International Labour Organization, the youth unemployment rate for Asia and the Pacific was 13.9% in 2023. In South Asia, the data was at a 15-year-low.

Chinese data were the outlier in East Asia. In Japan and South Korea, youth unemployment rates were at historic lows.

The U.S. Bureau of Labor Statistics reported that youth unemployment in July was 9.8%, up from 8.7% the same period last year.

But China's tweaks to its own figures to exclude students have made direct comparisons with other countries less precise.

Why focus specifically on urban youth unemployment?

There are several reasons why economists and analysts look to youth unemployment rates for insight.

Since young graduates are more actively looking for work than those who are mid-career, their jobless rate is more prone to fluctuations that can hint at corporate confidence and hiring trends. China's total unemployment rate has hovered around 5% for the past few years, even through the pandemic.

"The overall unemployment rate is just too stable, making it difficult to draw any meaningful conclusions," said Phoebe Feng, a Beijing-based associate economist at the Institute of International Finance. "The youth unemployment rate is more sensitive to changes in the job market situation."

Prolonged periods of youth unemployment can also indicate economic challenges down the road. Zhang Yifan, a professor of economics at the Chinese University of Hong Kong, said if young workers can't find jobs, that may have a "scarring effect" that hinders their lifetime earnings, skill accumulation and future career development.

Youth unemployment could become a political liability as well. Discontent among Chinese workers, who worry about working harder for less economic gains, could garner anger towards the government or lead to social instability.

What has China done to address the problem?

On Tuesday, China's central bank announced that it would cut rates in its biggest stimulus package since the pandemic in order to encourage consumption and shore up the economy. It also announced measures to support the stock and property market.

But analysts said China would need to do more in order to reach its 5% growth target for the year.

In May, President Xi Jinping promised to prioritize job creation and improve employment prospects. Chinese officials have also encouraged young graduates to return to rural areas, embrace nontraditional jobs and "eat bitterness."

Even before China began releasing its new youth unemployment figures, some analysts speculated that the true scale of the phenomenon might be larger than data suggests. Erica Tay, an economist at Maybank Investment Banking Group, said that since China considers employment as working at least one hour per week, there's no way to account for underemployed youth.

"The youth unemployment numbers draw scrutiny because they are a rare glimpse into pockets of acute weakness in the economy," she said. "If almost one out of five youths that are not in school did not manage to work even an hour a week, that points to unusual strains in the job market."

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