IMEN Letter August 2026 #3: U.S. labor market

Today, the U.S. Bureau of Labor Statistics (BLS) released the employment situation report for July. BLS reports quite often bring surprises. Instead of rising moderately as expected, employment fell by 23,000. In addition, the figures for May and June were revised down substantially. Based on today’s report, a total of only 103,000 jobs were created over the past three months. The downward trend in labor force participation is also worrying.

We know that, due to the new immigration policy of the U.S. government and the aging of the population, the number of jobs the economy can structurally be expected to add each month is no longer roughly between 100,000 and 150,000 as in earlier years, but likely below 50,000. Yet even against the backdrop of these structural changes, today’s numbers are disappointing.

What does today’s report mean for the Federal Reserve? On its own, it makes an interest rate increase in September somewhat less likely. However, the central bank is likely to place particular emphasis on inflation at the moment. As for persistently elevated inflation, we will learn about the July inflation data in the coming weeks. And before the Fed’s next meeting, we will also receive the employment report for August, among other data. As we know, such a report can significantly change the perception of the U.S. economy.

The Fed is unlikely to be pleased with today’s report. Speculation about stagflationary tendencies will pick up somewhat again, something a central bank never likes to see.