Moody’s Mark Zandi has an op-ed in the Washington Post which, shall we say, casts doubt on the unemployment rate:
The unemployment rate has historically been the go-to barometer for the economy’s performance. At just over 4 percent, unemployment remains low, and it has edged only a bit higher since the start of the year. Taken at face value, the economy is doing just fine.
But it’s not. If the labor force had increased this year at the pace it did last year, the unemployment rate would be headed toward 5 percent. Of course, low unemployment is great, but only if it is due to lots of new jobs, not an evaporating labor force.
And the labor force, which includes all those working and looking for work, is sounding the recession alarm bell. It has flatlined so far this year. Compare this with last year, when the labor force grew by well over 1 million workers, or the year before, when it increased by almost 2.5 million. Without more workers, it is tough for the economy to grow: A recession is more likely.
The labor force participation rate (LFPR) is the lowest it’s been since 1977. His explanation is the “severe restrictions on immigration”.
This time last year, the foreign-born labor force expanded at an extraordinary 5 percent yearly pace, translating into more than 1.5 million additional workers every year. In recent months, it has declined. The native-born labor force has picked up, but not enough to fill the void left by fleeing immigrants.
I think it’s more than that. I think that a number of factors including artificial intelligence, uncertainty about the effects of tariffs, etc. have caused businesses to hold back on hiring for the last seven or eight months.
Note, too, that the average private sector hourly wages have remained more or less flat since February 2025:
That doesn’t suggest businesses striving to hire workers who are unavailable. It suggests reluctance to pay more. And that doesn’t take the declining LFPR into account. A declining LFPR and wages that barely keep up with the rate of inflation are not good signs.
