What Everyone's Getting Wrong About the Job Market

Dear subscriber,

This week, fears of recession roared back in a big way as nearly 1 million jobs evaporated overnight.

By now, you've likely seen or at least heard about the latest report from the U.S. Bureau of Labor Statistics ("BLS"). The agency revised last year's nonfarm payrolls down by 911,000 jobs.

Since the labor market affects both our investments and our livelihoods... a lot of folks are worried.

Fortunately, as I'll show you, it's not quite as bad as many think...

While I can point to a number of worries you can and should have about the economy today, the labor market looks surprisingly resilient. All you need to do is look past the dour headlines, and you'll see that.

Let's start by getting back to the big news...

The BLS counts the number of jobs we've added (or lost) each month – known as "nonfarm payrolls."

These reports and figures can be a little confusing. For one, the BLS doesn't actually count each and every job. Instead, it uses statistical sampling to estimate what has happened each month. In other words, it reports how many jobs it thinks were created.

Then, in August of each year, it goes back and revises its count for the prior year (measured by the 12-month period ending in March) using the data it collected from state unemployment agencies.

And this time, the revision was a big one...

Again, nonfarm payrolls for the 12 months ending this March dropped by 911,000 jobs... That means the BLS overcounted by nearly 76,000 jobs each month.

On a percentage basis, the typical annual revision comes in at 0.2% less than the initial estimates. This year, the annual revision is 0.6% less – triple the normal "surprise" we usually get.

But here's the good news...

First, the agency is still reporting data... even if it doesn't look good.

In a classic "shoot the messenger" error last month, President Donald Trump fired BLS Commissioner Erika McEntarfer after the agency reported weak job growth.

While this revision is a big, negative number, it's good to see the BLS isn't cooking up happy stats to please Trump.

We want the real numbers, no matter what they show.

Moreover, this is just a counting error.

We didn't lose 1 million jobs. The economy is the same as it was last week. We just have a better understanding of what's happening in the labor market – even if that understanding is less rosy than it was a week ago.

Finally, the news didn't come as a huge shock to the investing world. Stocks shrugged it off. And the market has risen through the week and continues playing with all-time highs...

A New 'Normal'

Now, it's still worth examining the past few months of employment data.

We had a lot of concerns about the health of the labor market before this negative revision. And they all stem from slowing job creation.

As you can see, the number of jobs created each month has been in a steady downtrend, with a notable loss of 13,000 jobs in June and a gain of only 22,000 in August...

For reference, economists typically want to see something like 100,000 to 150,000 new jobs per month, as that signifies solid economic growth.

You can see above that job creation was off the charts as we bounced back from the pandemic-related layoffs in late 2021 and early 2022.

Then, that figure settled around 100,000 to 200,000 jobs per month for a while before notably declining in 2025.

However, the economy has changed significantly in recent years... And 100,000 new jobs per month may not be the goal any longer.

Previously, we needed those new jobs to keep up with our growing population. As the number of people living in our country kept rising, that 100,000 or so became the breakeven rate to keep the economy moving.

But now, the rate of population growth is changing dramatically.

Due to Trump's immigration policies, we have fewer people moving here – both legally and illegally. And that means we don't need as many new jobs to put them to work. With less people, it also means it's harder to find folks to fill the current openings.

In other words, it's not a problem of dwindling demand for labor due to a weak economy... The supply is simply down.

It's hard to settle on a firm number. Before Trump took office, net immigration ran at about 170,000 people per month. We don't know exactly how immigration has slowed just yet. But you can find detailed studies that put new immigration rates somewhere between negative 44,000 per month to 41,000 per month. With those estimates, the new monthly breakeven rate for job growth would be between 32,000 and 82,000.

That means numbers that were previously cause for concern may now be the new normal.

Three Signs of a Healthy Job Market

A growing population is very important to keep the economy on an upward trajectory.

Immigration adds both productive workers and active consumers. And that's how we grow. So it'll be important to keep an eye on GDP data from here as well.

As far as the labor market goes, these changes in immigration reframe the recent jobs number from looking like something of a big concern to just looking a little slow.

You can see this in the unemployment rate, too.

The unemployment rate measures the number of people who are actively looking for a job... but can't find one.

As you can see, even though job growth is declining, unemployment is stable and low at around 4.3%...

Dig deeper and you can find other signs of health...

For one, there are 7.2 million job openings and 7.4 million job seekers. That means there's roughly one job opening listed for every unemployed person.

Of course, that doesn't mean everyone can get a job. Skills or geography may not match up. But you can see that during recessions, the number of unemployed people far outpaces the number of openings.

And while openings have come down from the hot job market of 2021 and early 2022, there's still room to get those looking for jobs into a role...

People are also quitting their jobs...

In July, about 3.3% of the workforce, or 5.3 million people, were "separated" from their jobs. (That includes all reasons people leave jobs, like layoffs and retirement.) And a full 2% of the workforce left their job by quitting voluntarily.

People mostly quit jobs when they have a better opportunity elsewhere, or at least have confidence they'll find one. In that sense, layoffs are bad... quits are good.

And if 2% quit out of the 3.3% that left their jobs, that means 60% of the separations come from people who are choosing to leave...

That's a pretty good ratio. It's above what we saw in the 2001 and 2008 recessions. And while it's not as high as the 2021 boom, that figure has been on the rise since last September.

Now, the job market is always tough. It's never easy to find a great job. And young grads today have it especially hard as they struggle to compete with AI.

But despite what the headlines say, there's no need to panic about the job market right now – whether that be for your portfolio or your own employment prospects.

(And the Federal Reserve knows this as well. So if you think the revision will speed up the Fed's rate-cutting cycle... it won't. Markets expect a quarter-point cut next week, and that hasn't changed with this news.)

Remember, the economy is always more complex than the headlines – and going just a bit deeper can show you what's really going on.

What Our Experts Are Reading and Sharing... 

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• Government debt isn't just a U.S. (or U.K.) problem. Mervyn Allister King, Lord King of Lothbury and former head of the Bank of England, says all the G7 countries are "in the same mess" of too much borrowing. And it could send interest rates higher.
• The momentum, premiums, and business model of crypto treasury companies have started to slide. (It's just as I warned two months ago.)

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Until next week,

Matt Weinschenk
Director of Research

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