The US job market is facing a slowdown in employment growth, mainly due to stricter immigration policies. The current monthly job growth estimate is about 100,000, which is lower than in past years. This slowdown is linked to a drop in labor supply growth due to immigration restrictions from the Trump administration. If the growth of the foreign-born population goes back to 1.3%, we could see job growth stabilize around 100,000 per month.

Native and Foreign-Born Population Contributions

It’s expected that 70% of job growth will come from the native-born population, while 30% will come from foreign-born individuals. However, changes in immigration policies and the return of native-born workers could affect these numbers. From May to July, the average monthly job growth fell to just 35,000, indicating there’s an oversupply in the labor market. This seems less concerning given the decrease in foreign-born workers. As of early August 2025, the US labor market shows clear warning signs. Monthly job growth has dropped to around 100,000, with even weaker performance from May to July. This slowdown challenges the idea of a strong economy.

Federal Reserve and Market Outlook

The July 2025 jobs report, released last week, showed only a 50,000 increase in payrolls, highlighting the weak trend that surprised many analysts. Coupled with issues stemming from immigration limits, this signals that the labor market lacks momentum. Historically, sharp drops in job growth often lead to broader economic slowdowns. For traders, this suggests a more cautious Federal Reserve. It might be wise to prepare for possible interest rate cuts later this year or early 2026. This can be done through derivatives linked to the Secured Overnight Financing Rate (SOFR), which would benefit from lower rates. This slowdown also affects the stock market, as weak job growth can lead to reduced consumer spending and lower corporate profits. The CBOE Volatility Index, or VIX, rose to 19.5 this week, up from around 14 earlier this summer. We see value in buying put options on major indices like the S&P 500 to protect against potential market declines. Looking back to the time before the 2008 downturn, we can see a similar trend where monthly job gains faded before turning negative. The current situation is complicated by immigration policies tightened during the Trump administration, adding uncertainty that could increase market volatility. Therefore, we are closely monitoring any discussions on immigration reform, as changes in policy could significantly affect labor supply. Until then, the labor market seems likely to decline. This justifies a defensive approach using derivatives to guard against further economic weakness. Create your live VT Markets account and start trading now.

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