Forward Guidance
August 14, 2025

How Immigration Is Distorting U.S. Jobs Data

The U.S. jobs report has become a statistical funhouse, where strong payroll growth coexists with a rising unemployment rate and weak reports fail to move the needle. This analysis unpacks the great distortion at the heart of the labor market: wildly fluctuating immigration and the government’s struggle to count a constantly shifting population.

The Immigration Whiplash

  • "We're sort of in a world of lower job growth but unemployment not zooming up, and I think that that labor supply and immigration is the big story."
  • "The relationship between the trajectory of the unemployment rate and non-farm payroll growth that we thought we had coming in has repeatedly been thrown offsides by labor supply growth."
  • The traditional link between payroll numbers and unemployment is broken. In 2023, a surge in immigration boosted the labor supply, allowing the economy to add hundreds of thousands of jobs without a corresponding plunge in unemployment.
  • Now, the script has flipped. An aggressive clampdown on immigration has caused labor supply growth to "crash." This explains the paradox of weaker job reports coexisting with a stable unemployment rate—fewer people are entering the labor force, so fewer new jobs are needed to keep things steady.

The Government's Guessing Game

  • "Estimating the population is one of the hardest things that the government... has to do... After several years of underestimating population growth, they might be overestimating it because they're slow to adapt to how aggressively we've clamped down on immigration."
  • The Bureau of Labor Statistics (BLS) relies on Census Bureau population estimates, which are only fully updated every 10 years. In the interim, it’s an educated guessing game based on models.
  • These models have a history of being wrong. After years of undercounting population growth, the Census may now be overestimating it, as its models are too slow to capture the recent, sharp decline in immigration. This foundational error makes it nearly impossible to get a clean read on the labor market's true potential.

A Fragile Balancing Act

  • "If they've offset so far, it does not mean they're going to keep offsetting each other durably."
  • The current stability in the unemployment rate isn't a sign of health; it's a "nothing to see here" moment while explosions happen in the background. Falling labor demand is being conveniently offset by falling labor supply.
  • This balance is precarious. A demand-side shock (like tariffs) could cause unemployment to spike, or a continued labor supply squeeze could create an unexpectedly tight market, even with low job growth. The "break-even" payroll number required to keep unemployment stable is now much lower and harder to pinpoint.

Key Takeaways:

  • The headline jobs numbers are increasingly unreliable due to erratic immigration flows and flawed population data, masking a fragile equilibrium.
  • Rethink the Payroll Number: A low (or even negative) payroll print no longer signals a weak labor market. With slower population growth, fewer jobs are needed to maintain low unemployment, a dynamic common in aging economies like Japan.
  • Official Data Is Lagging Reality: The population estimates underpinning labor data likely overstate growth because they haven't caught up to the recent clampdown on immigration. The real labor market is likely tighter than it appears.
  • The Calm Is Deceptive: Today’s stable unemployment rate hides a tug-of-war between falling labor supply and demand. This fragile balance could break suddenly, leading to a sharp move in either direction.

For further insights, watch the full discussion here: Link

This episode reveals how unprecedented shifts in U.S. immigration are distorting core economic data, creating a fragile equilibrium that could violently impact the liquidity and risk appetite essential for Crypto AI markets.

The Unreliable Foundation: Why Population Data is Shaky

  • The Problem of Lag: The census occurs only every 10 years, forcing agencies to use models and interim data sources to project population growth. These projections can be, and recently have been, significantly wrong.
  • Recent Revisions: Early in 2024, the Census Bureau revised its estimates upward, acknowledging it had been undercounting population growth for several years. This caused a one-time upward jump in household survey data, including the labor force and employment levels.
  • A New Error?: The speaker, drawing on their analytical perspective, questions if the models have now overcorrected. “After several years of underestimating population growth, they're overestimating it because they're slow to adapt to how aggressively we've clamped down on immigration.” This suggests that current labor force potential might be much weaker than official projections indicate.

Strategic Implication: The foundational data driving Federal Reserve policy and market sentiment is less certain than assumed. For Crypto AI investors, this translates to a higher risk of unexpected market volatility, as policy decisions may be based on flawed or lagging indicators.

Immigration's Whiplash Effect on the Labor Market

  • The Core Mechanic: The unemployment rate's denominator is the labor force. When immigration is high, more people enter the labor force, meaning more jobs must be created each month just to keep the unemployment rate stable.
  • The Japanese Analogy: The speaker draws a parallel to Japan and Southern Europe, countries with aging populations and shrinking workforces. These economies can have tight labor markets and stable unemployment even with zero or negative net job growth—a potential future for the U.S. if immigration remains low.
  • Breaking the Old Framework: This supply-side shock forces a re-evaluation of what a "strong" or "weak" jobs report means. A low payroll number no longer automatically signals a weak economy; it could instead reflect a shrinking pool of available workers.

Strategic Implication: Investors can no longer interpret a low Non-Farm Payrolls (NFP) number—a key measure of jobs added—as a clear signal for the Federal Reserve to cut interest rates. If low job growth is due to supply constraints, it may not ease inflationary pressures, complicating the outlook for the cost of capital that fuels AI development and crypto market liquidity.

The 2023 Paradox: Strong Job Growth, Rising Unemployment

  • The Sahm Rule Trigger: This period saw the unemployment rate rise enough to trigger debates around the Sahm Rule, an indicator that historically signals the start of a recession.
  • The Labor Supply Explanation: The paradox is resolved by the massive influx of labor supply from immigration. The labor force was growing so quickly that even strong job creation couldn't fully absorb all the new entrants, causing the unemployment rate to rise.
  • A Reversal in 2024: Now, the situation has inverted. Job growth has slowed, but the unemployment rate has remained stable around 4.2%. This suggests the labor supply shock has reversed, with a clampdown on immigration slowing the growth of the labor force.

Strategic Implication: This demonstrates how labor supply dynamics can temporarily sever the traditional link between job growth and unemployment. For researchers and investors, it underscores the need to look beyond headline numbers and analyze the underlying components of the labor force to accurately gauge economic health.

The Great Offset: Demand and Supply in a Fragile Balance

  • Chair Powell's View: The speaker notes that Federal Reserve Chair Jerome Powell has also acknowledged this dynamic of demand and supply rebalancing.
  • The "Nothing to See Here" Illusion: The speaker uses a powerful analogy to describe the situation: "I share this gift from... one of the Naked Gun movies of Leslie Nielsen saying 'nothing to see here' while things are blowing up." While the unemployment rate appears stable, massive underlying shifts are occurring.
  • Two Divergent Paths: This fragile balance can break in two ways:
    • Demand Collapses: The effects of tariffs or other headwinds could cause demand to fall much faster than supply, leading to a rapid rise in unemployment and a potential recession.
    • Supply Squeezes Tighter: The immigration clampdown could constrain the labor supply so severely that the labor market actually tightens, even with low economic growth.

Strategic Implication: The current market stability is precarious. Crypto AI investors must be prepared for a sudden shift if one of these forces overpowers the other. A demand collapse would be deflationary and bad for risk assets, while a supply squeeze could be inflationary and force the Fed to remain hawkish, also pressuring markets.

The Unknowable "Break-Even" Number

  • Expert Disagreement: Top economists like Wendy Edelberg and Stan Veuger have produced estimates, but the speaker emphasizes the immense difficulty in calculating this number with precision.
  • The Impact of Flawed Data: If census population estimates are too high (as they may be now), the true break-even number is actually lower than commonly believed. This means a payroll print that looks weak might actually be sufficient to maintain a stable labor market.

Strategic Implication: The key metric for gauging labor market slack is now highly uncertain. This ambiguity complicates the Federal Reserve's policy path, making it harder for investors to predict future interest rate decisions that are critical for valuing long-duration assets like emerging AI technologies and crypto networks.

Conclusion

The traditional playbook for interpreting U.S. jobs data is broken, distorted by severe immigration-driven labor supply shocks. For Crypto AI investors, this means headline numbers are misleading. The key is to monitor whether slowing demand or constricting supply wins out, as this will determine the Fed's next move and the future of market liquidity.

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