The U.S. job market is showing signs of weakness; how much longer will the Federal Reserve wait?

The growth momentum of the U.S. job market is slowing down, and the actual situation may be weaker than the official data suggests. The market is closely watching when the Federal Reserve will respond to the weak signals from the labor market.

In the first five months of this year, the average monthly job creation in the U.S. was 124,000, significantly slower than last year's average of 168,000. This trend reflects the cumulative impact of tariff policies, government layoffs, and immigration control measures on the job market.

More critically, the Labor Department's routine revisions of employment data show that the monthly job growth from January to April was revised down by an average of 55,000 jobs. Meanwhile, on Wednesday, the ADP data, known as the "little non-farm" report, indicated that private sector jobs decreased by 33,000 in June, with small businesses facing particularly severe employment challenges.

Additionally, some market participants point out that deeper challenges lie in the slowing population growth and aging workforce, making it difficult for the U.S. to create jobs as quickly as in the past.

The downturn in the U.S. job market is becoming increasingly evident; how much longer will the Federal Reserve wait? Regarding the labor market, Federal Reserve Chairman Jerome Powell stated on Tuesday at the European Central Bank meeting in Sintra, Portugal, that he expects the labor market to gradually cool down and is closely monitoring any unexpected signs of weakness.

Analysts suggest that perhaps after tonight's non-farm employment report is released, the market will have a clearer "answer."

Official Data Systematically Overestimated

Multiple pieces of evidence suggest that the official employment data may be overestimated, with the actual job growth rate significantly lower than what the monthly employment reports indicate.

First, the U.S. Labor Department's employment data faces multiple statistical flaws, leading to a significant exaggeration of actual job growth. Routine monthly revisions have shown a clear downward trend.

From January to April this year, the Labor Department revised down the employment data by an average of 55,000 jobs per month, with March's employment data revised from an initially reported 228,000 down to a final figure of 120,000. Pantheon Macroeconomics economist Samuel Tombs believes:

This is mainly because many employers fail to respond to surveys in a timely manner, and those who respond quickly are often large companies with substantial capital, while small businesses that respond late are more likely to face operational difficulties.

Then, more important evidence comes from the Labor Department's Quarterly Census of Employment and Wages (QCEW) data.

According to Barclays economist Jonathan Millar's calculations based on QCEW data, the actual job creation in the U.S. from March to December last year was 607,000, less than half of the 1.4 million jobs reported in the monthly reports during the same period.

Finally, structural blind spots in corporate surveys are also problematic. Newly established businesses are not included in the sample, and information on business closures is delayed.

Although the Labor Department uses a "birth-death" model for adjustments, its accuracy is limited. Household survey data shows that job growth over the 12 months ending in May was about 1 million, far below the 1.7 million reported in corporate surveys

Sharp Deterioration in Small Business Employment

ADP data reveals a severe deterioration in the small business employment market, a group that is more sensitive to economic uncertainty.

According to a previous article by Wall Street Insight, the number of jobs in the U.S. private sector unexpectedly fell by 33,000 in June, marking the first negative growth since March 2023. This decline was primarily driven by a reduction of 47,000 positions in small businesses with fewer than 50 employees.

Notably, statistics show that since 2025, small businesses have added an average of only about 5,300 jobs per month, far below last year's average monthly increase of nearly 40,000. This trend reflects the multiple pressures faced by small businesses.

Analysts believe that compared to large enterprises, small businesses find it more challenging to cope with high tariffs and a sharp decline in the supply of immigrant labor. Economic uncertainty has led employers to avoid large-scale layoffs, but they have clearly slowed down their hiring pace.

Demographic Changes Constrain Growth Potential

In addition to factors such as economic weakness, demographic changes also constrain the potential for employment growth.

Economists Wendy Edelberg and Tara Watson from the Brookings Institution, along with Stan Veuger from the American Enterprise Institute, indicate that the net number of immigrants to the U.S. may drop to zero or become negative this year. The growth of the domestic working-age population has nearly stagnated, and the influx of new immigrant labor has been severely restricted.

This demographic change fundamentally alters the demand for employment growth. Researchers believe that in the second half of 2025, the U.S. may only need to add 10,000 to 40,000 jobs per month to maintain the current unemployment rate of 4.2% stable.

While a smaller labor force means fewer new jobs are needed to prevent an increase in the unemployment rate, it also signifies a decline in economic growth potential. The deeper impact of this demographic change is that an economy unable to rapidly increase employment as it did in the past will also face constraints on its growth rate.

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