Everyday Economics: Labor market is frozen: Deficits grow, the Fed still can’t relax

Friday’s jobs report looked weak enough to make you wonder why the Fed isn’t already talking about cuts.

Look closer. The labor market isn’t deteriorating. It’s stuck.

Payrolls fell 23,000 in July. That number is smaller than the survey’s own margin of error – statistically, it is indistinguishable from zero. And most of the decline was a seasonal quirk in government education, not a broad retreat by private employers. Private payrolls actually rose 30,000.

The revisions were the softer part of the report. May and June were revised down by a combined 103,000.

On the demand side, the hiring rate is low. On the supply side, there are fewer workers too.

The labor force shrank by roughly 264,000 in July. Participation is now 61.4%, down 0.7 percentage points since January. The foreign-born labor force is down about 550,000 from a year ago, and participation among native-born workers has softened as well.

That is why unemployment can stay low with almost no payroll growth. And it means the market can stay tight in one importa...