A job seeker, left, shakes hands with a representative during a career fair in the Brooklyn borough of New York.
The slowdown in immigration means that the United States doesn’t need such robust job gains to keep the unemployment rate stable, suggesting the recent slide in payrolls may not be as worrisome as some fear, according to new research from the Federal Reserve Bank of Dallas.
The so-called break-even employment rate has declined dramatically—to about 30,000 as of the middle of this year, down from a peak of approximately 250,000 in 2023—the analysis found. That coincided with ebbs and flows in immigration, which surged in 2022 and 2023 in the wake of the pandemic and began to reverse in mid-2024, the research showed.
“This recalibration suggests that today’s more modest payroll gains don’t signal weakness but are consistent with a balanced labor market,” Anton Cheremukhin, principal research economist at the Dallas Fed, said in a blog post Thursday.
Cheremukhin writes that the unemployment rate is a more “reliable signal” of the health of the labor market than payrolls because it’s not as swayed by changes in demographics. The jobless rate has held steady between 4.0 percent and 4.3 percent since the middle of last year, even as monthly job growth slowed. It was last recorded at the upper end of that range in August. The September jobs report, originally due last week, has been delayed by the government shutdown.
Fed Governor Michael Barr echoed Cheremukhin’s sentiment in a separate speech today, while noting that the simultaneous slowdown in labor supply growth and hiring leaves the job market “more vulnerable” to negative shocks.
“With a reduced supply of labor, what constitutes a healthy growth rate for employment would be smaller,” Barr said.
.What Bloomberg economists say...“The shift in the break-even estimate sharply changes the perception of labor market slack and shifts the importance of the unemployment rate for policymakers.”— Alex Tanzi |
Fed officials lowered their benchmark interest rate last month, a move that Chair Jerome Powell framed as a “risk-management cut” to support the labor market from growing risks. However, he’s repeatedly acknowledged the slowdown in immigration, saying the job market is in a “curious kind of balance” as both demand and supply of workers come down at the same time.
The Fed chief has emphasized that policymakers will face difficult choices as they weigh the risk of elevated and potentially rising inflation against the possibility of a deterioration in the labor market. And while the decision to cut interest rates last month was nearly unanimous, several policymakers, including Dallas Fed President Lorie Logan, are pushing for a cautious approach for further reductions to stay on guard against stubborn inflation.
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