Introduction
With Labor Day coming up on Friday, it’s important to understand how the Fed is tracking the labor market. In particular, it is important that we do not rely on non-agricultural monthly publications – something we have warned against ever since. 2023. Whiplash reviewsthe changing “breakeven rate” (the number of jobs needed to keep pace with population growth) from strong immigration and an aging population, and increased uncertainty from recent changes to the BLS’ birth death example (which estimates the start-ups and closings of businesses not yet captured in the establishment survey) makes it difficult to extract the signal from the monthly nonfarm payrolls documents.
For those new here or needing a refresher, the BLS releases two reports on Labor Day: the Current Employment Statistics (CES, often called the “establishment survey”) and the Current Population Survey (CPS, often called the “household survey”). The business establishment survey asks businesses how many employees they have each month while the household survey asks employees about their employment status, which allows the BLS to calculate measures such as the unemployment rate, labor force participation, and employment ratios in the population.
Labor Day issues the Fed cares about
Aspects, Not Aspects of Family Surveys
As we mentioned above, the formation analysis comes with many issues, but the family analysis data also has its own issues. Since the CPS is a survey, the BLS makes general calculations using population weights. However, that population density may not accurately reflect real-time demographic changes, because migration data is difficult to estimate in real-time. Measures such as full employment are unreliable.
Instead, the Fed prefers to stick to ratio measures such as the unemployment rate, and the ratio of employment to population, since migration affects both numbers and fractions of those measures in a way that often has to cancel.
Chairman Powell 3/18/2026:
“You can point out that the unemployment rate is stable, and in a world where the supply and demand for labor has dropped significantly in the last year because of the immigration policy, you know, the ratio is going to be a better thing to look at than job creation, for example.”
“If you can correct the way that it has been in terms of job creation in the past, let’s say, six months, if you can change what we think our employees think, which is overstating things because of over-recruitment, there is actually more independent job creation in the private sector. So you have a kind of balance of job growth.”
Chicago President Goolsbee 3/21/2026:
“The creation of wage jobs is a sign of a shrinking labor market, I think it’s a little bit worrying at a time of population growth and immigration… and there are a lot of questions about the labor supply. So I prefer to look at the rates… most of them have shown stability and are closer to full employment than we are on the inflation side.”
President of St Louis Musalem 4/1/2026:
“An analysis by the St. Louis Fed staff found that negative supply data explained most of the shortfalls in private employment growth from February, as well as the three, six and 12 months through February. This suggests to me that the unemployment rate and other disaggregations, such as the unemployment gap, provide more information about the current state of the labor market than the growth of the reward.”
In order to provide the most robust measure of employment, we measured the household employment rate and the population ratio in 5-year groups to match the current number of working-age people. This gives us a better idea of how the Fed is (or should be) tracking household survey data.
While this isn’t easy to read on the fly, a simple but powerful proxy for looking at the release of job day data is the Prime-Age (25-54) Employment to Population ratio.
President KC Schmid 3/31/2026:
“People between the ages of 25 and 54 who are less affected by schooling and retirement decisions are participating in the labor market at higher rates than we have seen in decades. The employment-population ratio for young workers is almost at 2019 levels and is above the average employment rates of the past 20 years, with a large share of employed workers. wages, the labor market continues to support great.”
The Breakeven Rate
Even though the growth of non-working wages is giving a more alarming signal than before, Fed officials are still putting a lot of weight on it. The values of the so-called number of wages “good” or “bad” depend on Fed officials and where they see the breakeven rate (the necessary increase in nonfarm income to maintain the unemployment rate).
Most FOMC members cite estimates of population growth to justify their deflated price forecasts. For example, Alberto Musalem recently quoted this estimate of migration growth to argue that current non-agricultural income growth is at the “low” end of breakeven growth. However, estimates of the increase in immigration vary and are difficult to produce. Other FOMC members shared their thoughts on inflationary inflation:
President Dallas Logan (2/10/2026): “Since the middle of the year, monthly job gains have been steady”
Minneapolis President Kashkari (9/3/2025): 75,000
Governor Barr (11/20/2025): The current labor market is “close” to collapse
Chair Powell 3/18/2026:
You can say “break-even is zero” but that is “not comfortable” (Mar. 2026)
Governor Cook 2/4/2026:
“This low wage growth does not necessarily reflect a weak labor market, as it may be linked to a fall in labor supply due to immigration and demographic policies.”
Governor Waller 3/20/2026:
“If so, then there is zero opportunity for new jobs…
President KC Schmid 3/31/2026:
“Actually, the increase in employment has been almost zero in the last 6 months. However, there has also been a very small increase in the number of people of working age.
It is important to note that some of these estimates were issued in the past months, and the views of FOMC participants regarding continued growth are changing. Given the lackluster earnings growth (after adjustments) over the past six months and the erratic behavior of the unemployment rate, participants are likely to revise their forecasts downward. For example, Jeffrey Schmid gave an estimate of 50,000 six months ago, but seems to believe it could be zero now.
Unexpectedly low wage growth and a relatively stagnant employment rate mean that wage growth has slowed. Below, we take the difference between wage growth and observed changes in the employment rate (after adjusting for differences in family formation and research definitions) to support the break-even rate (for the ratio of employment to population). We currently estimate that NFP’s 40-50k private placements represent more than monthly earnings. This is still a work in progress, and we’ll have more details on our breakeven formula in the next post.
The end
We have changed our case to not cut interest rates for 2026 due to inflation risks that existed before the Iran War and have been intensifying – in the last three months of data inflation is still close to 4% annually, twice the Fed’s 2% target. Stock prices have changed a lot and become unstable in the past few weeks – they are moving between highs and lows.
The Fed has pointed to an indefinite hold among various risks to its dual mandate. However, FOMC members maintain that they are willing to cut if the labor market looks dangerous. Since there is a possibility that non-farm income forecasts will change further, it is important to focus a little on the number of people paying the headlines and read carefully the distributions and progress of the breakeven income estimates.
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