While we wait for the big jobs report coming out Friday, there’s lots of uncertainty in the air as the impacts of tariffs and other policies shape the labor market. But in recent years, we’ve seen a somewhat puzzlingly resilient job market despite higher interest rates set by the Federal Reserve.
Now, a new report by the Dallas Fed offers some clarity, showing how certain sectors — like health care — may be behind that resilience.
Among labor economists and monetary policy wonks, Luke Pardue, policy director at the Aspen Economic Strategy Group, said that there’s still an open question: “Why do we still continue to see that really strong jobs growth relative to pre-pandemic levels when the Federal Reserve just went through this whole tightening cycle?”
The Dallas Fed report had an answer: Job growth has happened in sectors that are less cyclical.
“Sectors like health care or the federal or state governments aren’t as sensitive to interest rates, because they don’t need to rely on investment or sort of credit,” Pardue said. “In this post-pandemic time, a lot of the employment growth is coming from areas that just aren’t as responsive to interest rates.”
But there are other theories about labor market resilience.
“What looks like strength is just the normal process of recovery from very, very sharp decline employment that occurred during COVID period,” noted economist V.V. Chari with the University of Minnesota.
But he suspects there’s also something else at play. “Certainly, strong employment growth is probably due to the unprecedented surge in immigration.”
Mitchell Barnes, an economist at The Conference Board, agrees.
“Immigration is a key piece to this puzzle,” he said. “When you really just look at the population growth that we’ve seen, that is not only adding to the worker pool, but that’s adding to households, adding to spending.”
Immigrants increase the demand for products and services.
Barnes added that public investments during the Biden administration also supported the labor market.
“I think there are some one-offs where you start to look at some of the policy impacts that are underlying these numbers,” he said. “Non-residential construction — you know, potentially a beneficiary of a lot of that federal investment — has been pretty strong over that same time.”
For each sector, he said, there are different reasons for resilience.
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