Investing.com — The labor supply has materially weakened since the January 2026 population-control update, and labor-force growth has weakened by more than population growth, says a recent Barclays note. The firm believes that labor participation is falling, and slowing immigration and population aging will ensure that labor-market pressures continue to be a problem.
The published labor-market aggregates do not give an accurate picture, and Barclays’ estimates constructed from CPS microdata show a much sharper deterioration in labor supply. The firm’s analysis incorporates information about citizenship, immigration recency and reasons for nonparticipation that are not reported in the monthly CPS release, and identifies behavioural and demographic forces contributing to the slowdown.
“Population aging and the shrinking noncitizen population share are weighing on participation through composition effects, while retirements, home and family care, and other categories are increasingly depressing participation within demographic groups,” the investment bank stated.
The firm takes a pessimistic view on the question of whether the deterioration will go through sustained reversal. Instead, it sees the pace of deterioration moderating and believes the consequences for the labor market and the Fed are significant.
The pace of payroll growth consistent with stable unemployment could remain at or below zero for an extended period if Barclays’ previous estimates are stronger than the actual labor-force growth. Firm analysts add that this would allow even modest job gains to sustain labor-market tightness and wage pressures.
Significantly reduced humanitarian immigration and irregular entries, along with increased removals, have put some immigration categories into outright decline, says Barclays. According to the firm’s estimates, while a few years ago immigration was the economy’s most important source of new workers, it is now contributing only modestly to U.S. population growth.
Based on CPS microdata and published data, Barclays finds that gains in the labor force have deteriorated more substantially than population growth. The estimates from January-August 2026 show average declines of nearly 100k/m.
Firm analysts say the key question is whether demographics or participation behaviour are causing the deterioration, and these each have different consequences. Participation-driven weakness can prove to be cyclical, but slower immigration and population aging will likely be persistent.
Barclays finds that noncitizen growth in the population has declined sharply, while in the labor force it has turned negative on average. The analysts note that though population weakness is largely concentrated among noncitizens, the deterioration in labor-force growth has been broader.
The firm finds that relative to earlier years, the citizen labor-force growth has weakened too. Thus, only part of the aggregate labor-supply slowdown is explained by slowing immigration and population growth.
Recent noncitizen labor-force growth has declined sharply even as growth among other noncitizens has also substantially weakened. However, labor-force gains among native-born citizens have remained comparatively steady, though this year, growth among foreign-born citizens has slowed. Barclays believes that population and immigration dynamics are the primary source of the labor-supply slowdown. However, demographics are not a complete explanation as labor force growth has weakened by more than population growth.
Barclays says an important role in the labor-force growth slowdown is being played by labor-force participation changes. The firm’s research finds that the rise in nonparticipation has come entirely from people who say they do not want a job. This means that the share of the population outside the labor force despite wanting a job, including discouraged workers, is relatively unchanged.
The firm finds that nonparticipation is driven by a variety of reasons and combined with slower population growth, it will likely influence labor-supply dynamics towards continued weakness. Barclays believes neither the demographic nor the behavioural forces identified are likely to reverse meaningfully. The firm expects labor-force growth may remain weaker than previously assumed and this could cause the pace of payroll growth under a stable unemployment rate to remain at or below zero for a long time.
Related articles
Barclays sees lasting labor-market pressures as immigration slows, population ages
Will a falling unemployment rate keep U.S. inflation above target?
How might a U.S. fiscal crisis unfold? Capital Economics charts the path