Job growth slowed down substantially this summer. What we don't know for sure is why.

• That "why" is crucial for policymakers who must decide what to do next.

The big picture: If the jobs slowdown is due to less labor supply, thanks in part to restrictionist immigration policy, then it's nothing to worry about. If it is because employers are more reluctant to hire, then it's an early warning that the economy needs monetary stimulus.

• In other words, we could be in the early stages of a labor market downturn, which could justify the kinds of aggressive interest rate cutting the Trump administration seeks.
• Or we could just be seeing the inverse of the situation faced in 2023 and the first half of 2024, when high immigration rates unduly flattered the payrolls numbers, masking a deterioration in the health of the labor market. That would imply no rate cutting is needed.

State of play: Reliable numbers on immigration flows are hard to come by in real time, particularly for migrants with ambiguous legal status.

• If a large number of immigrants are being deported, self-deporting, or staying away from their workplaces for fear of immigration raids, it would translate into fewer workers on employers' payrolls.
• That, combined with the extra-large baby boom generation hitting retirement age, is exerting a downward drag on the rates of job creation consistent with a healthy job market.

Between the lines: Normally, the 35,000 average monthly job growth from May through July would be a four-alarm labor market fire.

• To the degree it's driven by those mechanical effects of immigration and demographics, it's not worthy of a policy response.

The intrigue: The inverse situation in the Biden administration shows the policy predicament. From April 2023 to July 2024, the unemployment rate rose a whopping 0.8 percentage point — one of many signs the labor market softened significantly.

• But the economy added an average of 177,000 jobs a month in that same span.
• At first glance, the combination of a rising unemployment rate and strong jobs growth simply does not compute.
• It is explained by a surge of immigrants seeking refugee and other statuses.

What they're saying: "We learned in '23 and '24 that if there are big immigration changes going, aggregate numbers like total GDP growth and total job creation can be very misleading short-run indicators of where we are in the business cycle," Chicago Fed president Austan Goolsbee told reporters last week.

• "I want us to not over-index on monthly payroll employment when we're in an environment where we don't know what the breakeven is because we don't know what the immigration flows are."

Of note: The official topic of this year's Jackson Hole Symposium, which starts Thursday, is "Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy."

• So these questions of how immigration policy and demographic changes are affecting labor market indicators are likely to be front and center, even though the topic was set long ago.

U.S. homebuilders started construction on new homes at the quickest pace in five months in July, though permits for future projects were the weakest since 2020.

Why it matters: The rise in activity might not ease fears that the housing recession, underway for years, could get worse in the months ahead.

By the numbers: New construction was stronger than expected last month, despite downbeat sentiment among homebuilders.

• New residential construction rose more than 5% in July to an annualized rate of 1.4 million homes, the government said today.
• Multifamily housing starts led the gain, with a 10% gain in one month alone. Single-family homes, which make up the lion's share of construction, rose roughly 2%.

Yes, but: Economists at Pantheon Macroeconomics said the surge of building was "noise rather than a sign that new residential construction is turning a corner."

• Monthly housing starts data can be volatile, with wide margins of error.

The intrigue: Construction firms signaled weak plans for building in the future.

• Building permits, a leading indicator of future construction activity, fell almost 3% in July to an annualized rate of 1.35 million. That is roughly 6% below the pace seen in the same period a year ago.

What to watch: The housing sector has slumped in recent years as high interest rates keep buyers on the sidelines.

• That has made builders more cautious about breaking ground on new projects that might not attract buyers. It has also hurt sales in the existing home market.
• Now there are two other factors weighing on housing: rising materials costs due to tariffs, and a crackdown on immigration that is shrinking the sector's labor pool.

The bottom line: The housing sector is expected to continue to weigh on broader economic growth.

• "Housing has been in recession since the Fed started raising rates in 2022 and we have not yet seen any green shoots," Jeffrey Roach, LPL Financial chief economist, wrote in a note.
• "We expect residential investment will drag on GDP growth but that should reverse in Q1 2026," Roach added.