Dismal jobs reports may be the new normal

OPINION:

Most observers were shocked by the anemic August jobs report, but it may be the new normal.

Slow job growth and persistent inflation result from the interactions of President Trump’s tariffs, immigration policies and artificial intelligence.

Mr. Trump has raised average import tariffs to about 18%.

Taxes on specific foreign products vary widely among countries of origin, and frequent changes threaten the durability of recently negotiated trade agreements with important partners such as the European Union.

Similarly, policy uncertainty is freezing most investment and hiring beyond spending to develop and deploy AI, which is powering a productivity revolution and labor market disruptions across the economy.

Imports are only 14% of gross domestic product, but in goods-producing industries, they often cap the prices U.S. firms may charge. For example, Japanese and Korean imports limit GM’s and Ford’s pricing discretion.

With tariffs uncertain, businesses can’t gauge the prices markets will accept over the long run. They don’t want to unnecessarily alienate customers in the near term, can’t assess what they will be paying for imported materials and components a few months from now, and are swallowing much of the cost of tariffs in the meantime.

Consequently, recent consumer price index readings are the coming attractions for persistent inflation near or above 3%.

To cope with rising tariff costs and sluggish demand, businesses are cutting head counts, seeking other economies, tightening marketing budgets and selectively raising prices to boost profits and stock prices.

Along with administration efforts to downsize government, those forces created only 22,000 jobs in August: 38,000 private-sector positions, while governments shed 16,000.

Mr. Trump’s deportation policy goes beyond criminals to almost anyone U.S. Immigration and Customs Enforcement can find, as the recent raid at the Georgia Hyundai complex demonstrated.

Also, it appears the administration is intent on significantly reducing legal immigration.

Apollo Global Management’s economists estimate that without net new immigrants to supplement indigenous working-age population growth, the economy can add only 24,000 jobs monthly, compared with about 130,000 added over the past eight years.

August unemployment at 4.3% is close to what Federal Reserve policymakers consider consistent with price stability and full employment.

Even with ICE on steroids, getting net immigration down to zero will prove challenging because tech leaders need foreign skilled workers to compete with China in the AI race. Americans are unlikely to take many roles immigrants fill in agriculture, construction and manufacturing.

Goldman Sachs expects net immigration to ultimately settle around 500,000 annually, but that wouldn’t be enough to power the kind of broad-based growth needed to lift up most unemployed Americans whose skills have been made redundant by AI.

The privately funded jobs market is neutral.

In August, the heavily dependent on government support private health care and social assistance industries added 47,000 jobs, while the rest of the private sector shed 9,000 jobs.

Many of those job losses were not caused by demand shrinking. Although GDP growth is not stellar, it is still positive, and corporate profits continue rising.

Layoffs and separations remain low, but businesses often use AI to backfill and do more with fewer employees as workers resign.

Consequently, in a slow-growing economy, many managers, white-collar workers with job-specific skills displaced by AI, such as customer service agents and insurance adjusters, and professionals such as junior-level software engineers and lawyers who lose their jobs, face longer periods of unemployment or permanent joblessness.

Many of the unemployed will need to retool or accept lower pay.

With an economy expected to grow less than 2% annually over the next decade, AI is increasing productivity more rapidly than demand in many industries.

Without more accelerated economic growth, AI-induced productivity gains will permanently eliminate more jobs than retraining resources could accommodate.

The Rust Bowl on a continental scale.

This realization is igniting pessimism among working- and middle-class Americans.

Vanished dreams make the electorate ripe for ideologues and authoritarian personalities on the left and right who promise radical changes that are little more than snake oil or are outrightly poisonous to democracy.

The August jobs report ignited expectations that the Fed would embark on a series of interest rate cuts, but without more immigration to enable businesses to fill gaps in occupations where not enough native-born Americans have the requisite skills or are inclined to work, easy money will yield mostly more inflation and boost the appeal of authoritarianism.

The remedy must be a skills-focused immigration policy to enable faster job growth across the entire economy.

From 1997 to 2024, the economy grew 2.5% annually and created more than 12 million jobs, many of which were filled by immigrants.

To reenable that pace, we need to accept about 1 million to 1.5 million immigrant workers with visas allocated according to where businesses can’t find enough skilled or willing American workers.

• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.