How much job growth is actually needed as population growth slows dramatically?

By Wolf Richter for WOLF STREET.

The federal government shed another 34,000 jobs in January as previously departed employees whose separation packages expired at yearend came off the payrolls.

Since the beginning of 2025, the federal government has shed 323,000 employees, or 10.7% of its staff, according to the Bureau of Labor Statistics today (I discussed today’s big annual benchmark revisions of nonfarm payrolls separately here).

Companies that lost government contracts, or whose contracts were reduced or paused, also laid off people. But those were private-sector jobs; they’re not included here; they’re included in private-sector employment below.

State governments shed another 18,000 employees in January. Since the beginning of 2025, they have shed 62,000 workers. Local governments added 10,000 jobs in January and 157,000 since the beginning of 2025.

Employment at all levels of government sank by 42,000 in January and by 166,000 since the beginning of 2025, having flipped from being a big job creator in the prior two years.

But the private sector added 172,000 jobs in January, the most in over a year (blue columns in the chart).

The three-month average, which irons out the month-to-month squiggles, hit a low point in August at zero jobs added, and has zigzagged higher since then, to 103,000 jobs by January (red line).

Since the beginning of 2025, it added 539,000 jobs. Since the beginning of 2024, it added 1.56 million jobs, with six of those months showing job declines, much weaker than previously reported, according to today’s revised figures.

But private sector job growth has ramped up in recent months.

The Fed should keep its eyes on private-sector jobs for its monetary policy decisions. While the drop in government employment impacts the unemployment rate, consumer spending, and the economy, it is the result of a political decision by the White House, and not the result of weak demand, slow consumer spending, or other economic weakness that might be considered a reason for rate cuts.

Total nonfarm payrolls, including governments, rose by 130,000 in January. For the past three months combined, total nonfarm payrolls rose by 219,000 jobs, for a three-month average job growth of 73,000 (red line in the chart below).

Year-over-year, total nonfarm employment rose by only 359,000.

Average hourly earnings rose by 0.41% in January from December (+5.0% annualized), after barely edging up in the prior month. The three-month average, which is more useful, rose by 3.5% annualized.

Year-over-year, average hourly earnings rose by 3.7% in January.

How much job growth is needed as population growth slows?

The crackdown on illegal immigration has dramatically slowed overall population growth. The Census Bureau estimates that, with current trends, Net International Migration (immigration minus emigration) could turn “negative” in two years, with more people leaving than coming.

Net International Migration in the 12 months to July 1, 2025, plunged by over half to 1.26 million people, but that period was a mix of six months of Biden’s immigration policies and six months of Trump’s immigration policies.

For the 12-month period through July 2026, the total population would increase by only 756,600, of which 518,000 from natural growth (births minus deaths) and the rest from Net International Immigration, according to projections by the Census Bureau, indicated in light blue in the chart below (my discussion: Population Growth Slows to Crawl, Net Migration May Turn “Negative”).

How much job growth is required to maintain or even tighten full employment under these conditions? Only part of the population growth of 756,000 would be in the labor force.

So maybe, as has been suggested, a growth rate in nonfarm payrolls of 50,000 jobs per month would maintain or tighten the currently already low unemployment levels.

The unemployment rate dropped to 4.28% in January, the second month of declines, the lowest since July, and at the low end of the historical range.

The unemployment rate reflects the number of unemployed people who are actively looking for a job divided by the labor force (people who are working or are looking for a job):

• The number of unemployed fell by 141,000, second month of declines, to 7.36 million, the lowest since July.
• The labor force jumped by 387,000 people: on a big gain in total jobs, including farm work and self-employment, and the drop in the number of unemployed.

The prime-age labor force participation rate (25-to-54-year-olds) rose to a multi-decade high of 84.1%.

The prime-age labor force participation rate eliminates the issue of the retiring boomers. The overall labor force participation rate shows the percentage of the population that either has a job or is looking for a job. When people retire and stop looking for a job, they exit the labor force but remain in the population until they die. The surge of boomer retirements, which started about 15 years ago, has pushed down the overall labor force participation rate, as these retired boomers are still in the population but no longer in the labor force.

The prime-age labor force participation rate is a cleaner depiction of participation in the labor market, than the overall participation rate, and speaks of a lot of strength in the labor market that has been changing dramatically since early 2025 due to the crackdown on illegal immigration, which has slowed the growth of supply of labor.

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WOLF STREET FEATURE: Daily Market Insights by Chris Vermeulen, Chief Investment Officer, TheTechnicalTraders.com.