Job Market Clearly Deteriorating, But a Key Driver Remains Mysterious
Job creation is clearly slowing, but it is hard to get a good read on it.
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Friday marks the end of the first trading week of September, historically the toughest month of the year for investors. More importantly, as far as this investor is concerned, the NFL season finally kicked off last night.
The initial Q2 estimate for GDP growth was recently revised up from 3% to 3.3%, largely as a result to surging AI related investments. Despite this, there don’t seem to be many growth drivers for this economy outside of AI, and we have had a series of concerning jobs numbers in recent months.
The July BLS jobs report came below expectations. In addition, the initial estimates for May and June job creation were adjusted down sharply. Wednesday, the JOLTS came in south of expectations and showed more job openings than unemployed individuals for the first time since April 2021. Thursday, the ADP jobs report also was lower than the consensus view and showed roughly half as many jobs were created in August than in July. On Friday morning, the August BLS report disclosed only 22,000 jobs being created last month, less than one-third the consensus.
It is clear the jobs market is slowing. However, it is hard to ascertain the true level of deterioration. The U.S. experienced an unprecedented wave of immigration under the previous administration. One of the results of which was that almost all net positions created from late 2019 through 2023 went to individuals that were nonnatives of the United States. In addition, the estimated jobs created from March 2023 through March 2024 were downwardly revised by over 800,000 positions last August, a month before the Federal Reserve last cut rates in mid-September of that year.
The country is now also experiencing an unprecedented mass re-migration out of the U.S. Some 1.6 million migrants left the country in the first seven months of this year, mostly via self-deportation. With huge increases in the federal budget for 2026 going toward immigration enforcement, this is going to be a trend that will remain in place in the coming quarters. The U.S. may now need only 50,000 to 100,000 new jobs a month to maintain the unemployment level. I don’t think any economist has a good handle on this right now pending further data.
This outmigration will also have numerous impacts at the margins around inflation. Given the large dependence on this labor pool by the agricultural, meat processing and restaurant industries; one would think this will have a significant impact on food inflation. The home building, hospitality, landscaping and construction sectors will also feel impacts and could experience wage inflation due to this trend.
On the flip side, this outmigration should have a deflationary impact on the margins for rental inflation. And the "shelter" component is the largest one in the CPI component. The August Apartment List National Rent Report just showed the median rent for last month was down slightly from July and fell almost 1% from the same month in 2024. Rents are also being impacted by the massive number of apartments that came online in 2024, the highest number since 1974.
Finally, this outmigration could have some beneficial impacts on local and state budgets. California is allocating nearly $10 billion to its MediCal budget to cover this segment of the population, a big chunk of its current deficit and New York City spent nearly $5 billion in just 2023 and 2024 supporting the previous wave of immigration.
So, yes, the jobs market seems to be deteriorating, and perhaps at a rapid pace. However, this key economic driver seems to be somewhat opaque to interpret right now.
At the time of publication, Jensen had no positions in any securities mentioned.
