This number is bad news for the economy - Mark Zandi, WaPo [View all]

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.

It’s no mystery what ails the labor force; it is the severe restrictions on immigration. The surge in undocumented immigrants that occurred during much of the Biden administration undoubtedly put financial and societal pressures on many communities across the country. However, many of these immigrants quickly applied for work authorization, received it and started a job less than a year after arriving.

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A labor force flat on its back has many implications — none of them good. It means disruptions to businesses that rely on immigrant labor. Agriculture and construction are especially vulnerable, but manufacturing, transportation, hospitality, retail, and child and elder care also depend critically on immigrants. Without these workers, labor costs will increase, adding to the inflation fueled by the tariffs. This is a compelling reason for the Federal Reserve to be cautious in resuming its interest rate cuts, and once it does, to go slowly.

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Given the current immigration policy, it seems increasingly unlikely that the moribund labor force will come back to life soon, and more likely that a recession is dead ahead.

https://wapo.st/45Fc3cQ

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