The labor market's new norm swings between job gains and losses
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For decades, the U.S. economy needed to add more than 100,000 jobs a month just to keep the unemployment rate from rising. That threshold has now collapsed toward zero — with broad implications for how to think about labor market health.
Why it matters: The economy has a new speed limit, one in which near-zero job growth can coexist with full employment.
- It reflects the baby boom generation reaching retirement age, smaller generations aging into the workforce and restrictionist immigration policy that includes deportations and fewer new workers from abroad.
- There's an instinct to read a soft payrolls number as a warning sign. But that type of thinking could lead economic policymakers and financial markets astray.
What they're saying: "Conveying that a zero-job growth economy is consistent with full employment is not easy," San Francisco Federal Reserve Bank president Mary Daly wrote in a blog post after Friday's jobs report.
- "The plentiful and dynamic labor market that has dominated much of recent history will likely feel distant," she added.
Driving the news: Friday's jobs report showed the economy added 178,000 jobs in March.
- It's the latest data point in a pattern that shows the economy alternating between job gains and outright losses, with no clear signal of either strength or weakness for much of the year.
Zoom in: With the breakeven rate — that is, how many jobs the economy needs to add to keep the unemployment rate steady — now near zero, those types of swings between job gains and losses are a statistical inevitability, according to new research from the Federal Reserve Board of Governors.
- "[E]mployment growth in any given month is almost as likely to be negative as it is to be positive," even if the broader economy is growing at its full potential, Fed staff economists Seth Murray and Ivan Vidangos wrote.
- "[I]t would not be unusual for there to be one or more months in 2026 with declines in total payroll employment as large as -100,000 jobs," they add.
The intrigue: The collapse in the breakeven rate reflects a collision of long-running demographic forces and a sharp, sudden reversal in immigration as the Trump administration ramps up deportations.
- Dallas Fed researchers estimate that more unauthorized immigrants left the U.S. than entered in the second half of 2025 — a net outflow averaging 55,000 people a month, and 548,000 for the full year.
- Combined with a declining labor force participation rate, those outflows pushed the monthly breakeven from a peak of roughly 250,000 jobs in 2023 to near zero (and briefly negative) by late 2025, the Dallas Fed said in a paper last week.
Stunning stat: The Fed Board economists say the pool of available workers could be growing by fewer than 10,000 per month in 2026, a pace without precedent in at least 65 years of labor market history.
What to watch: Productivity growth, perhaps from the AI boom, can fill some of the gap left by a shrinking labor force, but it's notoriously hard to predict, making the economic outlook murkier than usual.
- This backdrop "can increase the risk of making a policy miscalculation, holding conditions too loose or too tight for the evolution of the economy," Daly wrote.
The bottom line: The Fed will have less of a signal from the once-reliable guidepost of monthly employment figures at a particularly complicated time when the Iran war energy shock is rippling through the economy.
