The U.S. labor market showed fresh signs of volatility in early 2026 but Federal Reserve officials say the swings are not necessarily a sign of weakness — and that zero or even negative monthly job growth could be consistent with a healthy economy given dramatically slower labor force expansion.
Data released Friday showed employers added 178,000 payroll jobs in March, a rebound from a newly revised 133,000-job loss in February and closer to the 160,000 hires recorded in January. Those month-to-month swings reflect an erratic start to the year that has seen gains one month and contractions the next, but Fed policymakers are pointing to longer-term structural shifts that change how those numbers should be judged.
San Francisco Fed president Mary Daly argued in a blog post that a rapid decline in net immigration and other policy changes have pushed labor force growth toward zero, lowering the “speed limit” for the labor market. “Conveying that a zero-job growth economy is consistent with full employment is not easy,” Daly wrote, but with labor force growth near zero a month with no net job gains—or even a small loss—“could be consistent with expectations and not necessarily a sign of weakness.”
That view is bolstered by new Federal Reserve research by Seth Murray and Ivan Vidangos, which calculates that the breakeven pace of monthly job creation needed to keep unemployment steady could fall to nearly zero this year. The authors contend the unprecedented slowdown in immigration may shrink labor force growth so much that fewer than 10,000 new jobs per month would be sufficient to maintain low joblessness — a dramatic shift from the pre-pandemic norm of hundreds of thousands of monthly hires.
Fed governor Chris Waller has made a similar point, saying zero job growth could coincide with a balanced labor market if the size of the labor force stops expanding. The officials’ comments indicate a move away from relying on raw monthly payroll gains as a primary gauge of labor market health.
Daly said she will instead lean more on rates and ratios that account for changes in workforce size, including the employment-to-population ratio, the unemployment rate, the quits rate and the hiring rate. Those measures can better reflect workers’ attachment to the labor market and firms’ willingness to recruit, she said.
The Labor Department’s more detailed hiring data show signs of cooling: the hires rate slipped to 3.1 percent, its weakest pace since the early days of the pandemic and the lowest since 2011, according to the department’s most recent release. A falling hires rate could signal softer demand for labor even if unemployment remains steady, underscoring why some Fed officials want to broaden the indicators they watch.
Taken together, the data and Fed commentary suggest policymakers are recalibrating their assessment tools amid structural demographic and policy changes that are reducing the workforce’s growth. That recalibration could influence how the Fed interprets future employment reports when setting monetary policy, making smaller monthly swings less likely to trigger immediate alarm.