The US is experiencing a downturn in trend employment growth, attributed to stricter immigration policies. The current estimate for monthly job growth is 100,000, a decrease when compared to previous years.<\/p>\n
The slowdown is largely due to reduced growth in the labour supply, following immigration restrictions introduced during the Trump administration. If foreign-born population growth returns to its pre-pandemic rate of 1.3%, trend employment growth might stabilise around 100,000 jobs per month. <\/p>\n
Native-born population growth is expected to contribute 70% of this trend, while 30% is anticipated from the foreign-born population. However, changes in immigration policy and the potential return of native-born workers to the market could impact these estimates.<\/p>\n
Between May and July, average monthly job growth fell to 35,000, suggesting an excess supply in the labour market. This appears less severe given the reduced influx of foreign-born workers.<\/p>\n
We are looking at a US labor market that is clearly flashing warning signs as of early August 2025. The trend for monthly job growth has fallen to around 100,000, and recent performance between May and July was even weaker. This slowdown is a direct challenge to the narrative of a robustly expanding economy.<\/p>\n
The latest jobs report for July 2025, which came out last week, showed a payroll gain of only 50,000, reinforcing this weak trend and surprising many analysts. This figure, combined with the underlying weakness from immigration constraints, suggests the labor market has little momentum. Historically, such sharp decelerations in job growth have often preceded broader economic cooling.<\/p>\n
For traders, this points toward a more dovish Federal Reserve. We believe positioning for potential interest rate cuts later this year or in early 2026 is a prudent strategy. This can be expressed through derivatives tied to the Secured Overnight Financing Rate (SOFR), which would rally on expectations of lower rates.<\/p>\n
The slowdown also has direct implications for the stock market, as weak employment can translate to lower consumer spending and corporate profits. The CBOE Volatility Index, or VIX, has already climbed to 19.5 this week, up from lows near 14 earlier in the summer. We see value in purchasing put options on major indices like the S&P 500 to hedge against a potential market downturn in the coming months.<\/p>\n
Looking back at the period before the 2008 downturn, we saw a similar pattern where monthly job gains fizzled out before turning negative. The current situation is fueled by a unique structural issue tied to immigration policies that were tightened during the Trump administration. This political element adds a layer of uncertainty that could spark higher volatility.<\/p>\n
Therefore, we are closely watching any legislative discussions regarding immigration reform, as a change in policy could alter the labor supply estimates significantly. Until then, the path of least resistance for the labor market appears to be down. This justifies a defensive posture, using derivatives to protect against further economic weakness.<\/p>\n
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