American employers cut 23,000 jobs in July and the unemployment rate fell to 4.1 per cent. The two facts are not in tension. They are what a labour market looks like when demand is steady and the working-age population has stopped growing: few people are being let go, and there are not many new entrants to hire. Revisions took 103,000 jobs out of May and June, and participation slipped to 61.4 per cent — a smaller labour force, not a longer queue.
The Federal Reserve chair set it out at Jackson Hole on 28 August. “Labor markets are quite stable,” he said. “The jobless rate, at 4.1 percent, remains low by historical standards and has not changed much for a couple of years.” On the monthly numbers he was blunter still: “When labor supply is barely growing, monthly job gains are naturally going to run low.”
The emergency in this economy is not on the employment side of the mandate. It is in the price of everything.
Because on the other side of the mandate the record is bad. The Fed’s preferred measure of inflation is running at 3.7 per cent over twelve months and 4.1 per cent over six, and 49 per cent of the goods and services in the basket have been rising at annualised rates above 3 per cent. Real pay is falling, but it is falling because prices are climbing, not because jobs are scarce. That is a monetary failure with a monetary remedy.
The strongest objection is that the statistics themselves cannot be trusted, and this month the objection was tested. The annual benchmark exercise, which checks the payroll survey against tax records, cut employment in the year to March 2026 by 79,000 — one tenth of one per cent — with private payrolls down 178,000. Priscilla Thiagamoorthy of BMO read the result plainly: it “does not signal a broad labour market downturn or materially change the economic outlook.”
For a sense of what a genuinely sick labour market looks like, look east. Germany’s Federal Employment Agency reported on 28 August that 3.061 million people were out of work, a rate of 6.5 per cent, up 54,000 on the month and 36,000 on the year. Employment subject to social insurance was 73,000 lower than a year earlier, and 140,000 workers were on short-time schemes in June. That is what happens when energy is dear and dismissal is expensive.
None of which means the falling participation rate is nothing. It is a supply problem and it deserves supply answers: work-based immigration that admits people who will actually work, tax and pension rules that do not pay experienced people to leave at fifty-five, and training worth an employer’s time. What it does not deserve is a looser central bank. Cheap money does not create workers. It bids up the price of the ones already there.
The temptation over the next two months will be to read a weak payroll number as permission to cut rates, and to treat 4.1 per cent as evidence that inflation has been beaten by something other than the Fed. Neither follows. The employment side of the mandate is in reasonable shape. The price side is not, and pretending otherwise is how an inflation that was supposed to be transitory entered its sixth year.
