The real truth about the jobs data in 2026

Don’t call it a comeback, the labor market has been here for years, sending those recession scrubs back to another hemisphere. I digress with my Gen X music references, but the jobs data once again beat estimates today, so what is really going on here? How did the jobs data flip positive in such a crazy period in 2026?

To keep it short and simple, in 2025 the Godzilla tariffs, the government shutdown, higher mortgage rates and the lack of growth in housing construction all affected the labor data last year, especially in the second half of 2025. Now some of that is working itself off, much like what we saw with the first trade war in 2018-2019.

This has been a recurring theme for me for some time and I talked about in both today’s episode of the HousingWire Daily podcast and in yesterday’s episode. I also wrote an article this week saying the labor-over-inflation model is dead in 2026 due to better jobs data and hotter inflation.

So, lets take a look at today’s jobs report and the past 12 months to get a real picture of what’s happening.

Jobs Friday

From BLS: “Total nonfarm payroll employment increased by 172,000 in May, and the unemployment rate was unchanged at 4.3 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in leisure and hospitality, local government, and health care. Employment in financial activities declined.”

Now, some could say we have a hospitality staffing surge due to the World Cup coming to the U.S. However, we have seen more breadth in the jobs data over the past few months, where that wasn’t the case in 2025.

The Fed’s breakeven employment growth rate

The Federal Reserve has repeatedly said that no one is looking for work anymore due to a lack of immigration, and that job numbers can be permanently lower. I estimate the Federal Reserve’s breakeven to be around 33,000, meaning they’d be fine with the labor market if they saw 33,000 jobs created. I hope they now go back and revise their take on this.

My breakeven — meaning the number of jobs needed to keep the unemployment rate from rising — has been 78,000 since 2025. So the softness in labor was legit last year; now it looks like we are making up for that softness by getting back to normal.

If I take the last six months of labor data, we are now averaging 92,000 jobs per month. If I go back 12 months, it’s 42,000 per month. We are basically going back to what I deem normal, very similar to what I believe the labor market was in 2024. Back in 2024, the labor data was being revised downward, but it was just getting back to what I deem normal.

With that premise above, it isn’t shocking now that the unemployment rate has fallen back to 4.3% from the high of nearly 4.6% last year.

Conclusion

Now I have had a different take on the labor market than most since 2022. The labor data was softening in 2025, but it never broke, as the jobless claims data has been telling us since 2022. I believe higher rates, the trade war, the government shutdown and all the drama in 2025 impacted the labor market more than the slowdown in population growth.

Now it looks like we are returning to normal job growth in our labor force. Can this continue? Time will tell, but job openings are still over 7 million, jobless claims are low and the economy is still growing. This will make life for the Federal Reserve much more interesting over the next 12 months.