The August jobs report is highly anticipated as the Federal Reserve contemplates raising interest rates to try to slow economic growth and tamp down price increases — without damaging the labor market.

A jobs report showing a significant rebound from July’s negative 23,000 change in nonfarm payroll jobs, with unemployment holding steady in the low 4% range, would give the Fed more room to raise rates.

Ahead of the release, expectations for job creation were all over the map, ranging from 58,000 more jobs to zero jobs.

And — from a purely “health-of-the-labor-market” perspective — either outcome could be fine, a recent research paper by economists at the Federal Reserve Bank of Dallas argues. That’s because job creation in that range can still leave the unemployment rate at historically low levels.

In an August 20 appearance on CNBC, Treasury Secretary Scott Bessent portrayed July’s dismal jobs report as part of a positive trend.

“The jobs that we’re seeing are going to Americans,” he said. “After the deportations that we’ve seen during President Trump’s administration, and the closing of the border — this unfettered migration — we don’t need to produce as many jobs.”

Is the treasury secretary correct? Can the economy actually have lost 23,000 jobs in July, and have added only 20,000 jobs per month on average from May through July, and still call this a healthy labor market?

“We’re likely to have months where we see negative job growth, but the unemployment rate will not increase,” said Joe Brusuelas, chief economist at consulting firm RSM, “which is sure to confuse the American public.”

Persistent monthly declines in payroll jobs are typically associated with recessions, rising layoffs, and a sharply escalating unemployment rate.

But that’s not true right now, said economist Justin Bloesch, economics professor at the Cornell University School of Industrial and Labor Relations.

“If you tuned into jobs reports in the past, you’d be used to 100,000 jobs, 200,000 jobs being a good number,” Bloesch said. “If you are used to seeing big numbers and think, ‘Zero jobs is bad news,’ that’s just no longer the case.”

It’s part of the changing political and economic state of the country.

“Immigration has gone into decline, deportations are also up, and the Baby Boomers are retiring,” he said. “So, you would expect the economy, on average, actually will not add jobs — because the labor force is not growing.”

Nicole Bachaud, a labor economist at ZipRecruiter, put the trend in historical perspective.

“The labor market is shifting pretty rapidly, especially when we look at the demographics of the U.S. population and how that’s changing who is available to work,” Bachaud said. “20 years ago, if we had negative-23,000 jobs, it would be very different. But with fewer workers in the market looking for work, we don’t need as many jobs in order to maintain a stable unemployment rate.”

This can be explained by a concept in economics called “break-even job growth,” said Heidi Shierholz, former chief economist at the U.S. Department of Labor and now president of the Economic Policy Institute.

“It’s how many jobs you need to just keep the unemployment rate steady,” she said.

After a surge in immigration during the Biden Administration, “U.S. population growth has slowed to a crawl,” Shierholz said. “The thing that had been keeping the break-even rate higher was net immigration. But due to the Draconian immigration enforcement regime that we have in place now, that has totally tanked.

“When Trump took office,” Shierholz continued, “break-even job growth per month was likely around 120,000. Now, the highest estimates are around 50,000, and many are much lower — like zero. However you slice it, we now need way fewer jobs.”

And that’s exactly what we’ve seen, according to Shierholz.

“Jobs added each month has really tanked,” she said. “And we haven’t seen too much of an increase in unemployment. So that’s positive. The drawback is, reduced job growth really reduces labor-market dynamism.”

That’s so-called labor-market churn, when a lot of workers are changing jobs, quitting and landing new jobs, which often leads to better job matches, more promotions and higher pay.

Right now, indicators of labor-market churn, like the quits rate, are historically low. And with few new jobs to land or switch to, “somebody who doesn’t have as much work experience, especially new entrants, new grads starting out their career, that’s who’s really facing the most challenges,” Bachaud said.

And even if the unemployment rate isn’t rising right now, “people are still being laid off, businesses close,” Bachaud said. “It’s very difficult right now to get back into full-time employment. Slow hiring and low turnover from existing employees are limiting the opportunities. And so unemployment becomes a steady state. That’s one of the reasons we’re seeing the labor force shrinking, as people who have been unemployed for six-plus months, a year or more, are figuring out other options that don’t include regular employment.”

There is also an economic cost to removing immigrant workers from the labor force and the country, said RSM’s Brusuelas.

“Without a doubt, the economy could be growing faster, and productivity would be improved, if we were importing labor,” he said.

One reason for that: “Immigrants in the U.S. form a lot of businesses and are often involved in frontier industries, high-tech stuff,” Cornell’s Bloesch said. “Fewer immigrants definitely hurts.”

Treasury Secretary Bessent insisted in his comments to CNBC in August that having fewer immigrant workers entering and remaining in the U.S. also helps — by opening up more jobs for U.S.-born workers.

“In fact, the opposite is true,” said Jed Kolko, senior fellow at the Peterson Institute for International Economics. “Over the past year or more, the unemployment rate has fallen significantly for foreign-born workers, but has risen for native-born workers.

“Often native- and foreign-born workers are working together in the same business or organization, but in different jobs,” he continued. “And if that business can’t find the foreign-born workers they’ve traditionally had, they might need to cut back and therefore not hire as many native-born workers.”

One sector where this is playing out right now is construction, said EPI’s Shierholz.

“Deport roofers and framers, then fewer houses get built,” she said. “So U.S.-born electricians and plumbers also lose their jobs.”

Related Topics