The U.S. labor market is entering a “new normal.” With it, the U.S. economy will likely wave goodbye to the days of six-figure payroll reports, 3% unemployment, and 10+ million job openings.

In conversation with TheStreet, Lightcast senior economist & principal researcher Elizabeth Crofoot said that demographic shifts, restrictive immigration policy, and AI investment are all causing the labor market to shrink. The shift marks a transition from pandemic-era extremes to new, long-term realities.

Lightcast provides labor market data to 67 of Fortune 100 companies, plus hundreds of “workforce and economic development orgs” and educational institutions, offering rich insight on the minutiae of the American job market.

“We know this is a supply/demand story ultimately, because unemployment is comparing people who are looking for work versus people who have jobs currently,” Crofoot said. “Unemployment has been steady but not giving you a full picture of what’s happening under the hood.”

What’s Under the Hood?

The U.S. labor market has seen tepid payroll growth since April, when the Trump administration announced its controversial tariff policy. Since then, payroll additions have fallen off a cliff. In May and June, accounting for downward revisions, the U.S. economy only added 19,000 and 14,000 jobs. 

However, the unemployment rate remained anchored at 4.2% in July, despite an uptick in new and continuing jobless claims. Crofoot says that the discrepancy is coming from people “turning away” from the labor force. Many are retiring, while others might be prioritizing education. Some, like seasonal workers, may even be leaving the country.

“We usually see the labor force grow as the population grows, so when that doesn’t happen, that’s a red flag.” She notes that over 400,000 people have left the labor force since the start of the year: “There are just not the people to have the jobs.”

The effects on various industries come down to the demographics of each field and job. Restrictive immigration policy might be having a more pronounced impact on fields like agriculture or hospitality, while skilled workers in trades like construction or plumbing might be retiring and taking their skills with them. 

In the near-term, this could result in greater competition for labor in certain in-demand fields, driving up salaries. However, it’s likely to help mid and senior-level staffers more, especially as businesses hold off on entry-level hiring as a result of artificial intelligence investments and tariff tumult.

However, Crofoot says that these factors don’t necessarily spell catastrophe for the labor market. They just call for an adjustment of expectations. Whereas the U.S. economy used to regularly add hundreds of thousands of jobs in each monthly payroll report, Crofoot says economists and analysts should be “used to expecting job growth to be 50,000 to 70,000 per month.”

She adds, “That might be enough to keep unemployment steady since we’re not expanding the labor force.” 

This Week’s Big Report

Previewing this week’s highly-anticipated August jobs report from the Bureau of Labor Statistics (BLS), many economists and market participants will have their eye on downward revisions for July.

The BLS’s initial report showed that the U.S. economy added 73,000 jobs, but Crofoot notes that the number could “turn negative” if recent downward revisions are any indication.

August’s payroll data has been heralded as one of the heftiest ingredients in whether the Federal Reserve will cut at its September Federal Open Market Committee (FOMC) meeting later this month, making it a ‘Super Bowl’-like economic event.

Ahead of the big report, the BLS reported data from the Job Openings and Labor Turnover Survey (JOLTs) on Wednesday, which showed that job openings declined to 7.181 million, eclipsing the number of people currently seeking jobs in the labor market. Quits moderated at 3.208 million.

Investors will get more clues into Friday’s big print as Challenger’s Job Cuts and ADP’s Employment Change data for August are due out tomorrow morning. Initial & continuing jobless claims are also due out early Thursday.