CITIC Securities International | Non-farm payrolls break even at 0, what does it mean

By Qian Wei

The Federal Reserve’s research shows that in 2026 the job growth required to break even on employment—or else the figure may fall to 0—is mainly due to a decline in immigration (a smaller population base) and population aging (a decline in the labor force participation rate).

Policy implications for the Federal Reserve:

(1) In the short term, if the break-even employment level really is 0, even though current nonfarm data are bad, as long as they do not keep posting negative growth, the unemployment rate will not rise. Amid an oil price shock, this will give the Fed a longer window to hold off on rate cuts without committing to them.

(2) In the medium term, unemployment stabilizing does not mean the economy is fine, nor is it the Fed’s ultimate goal. If break-even employment falls to 0, it means the economy’s potential growth rate has dropped sharply and the endogenous pressure on inflation is lower. Instead, the Fed would need to pursue higher nominal growth by pushing down the unemployment rate and increase the力度 of rate cuts.

Impact on U.S. Treasury market performance: In the short term, yields will continue to oscillate at high levels, and another round of upward pressure is not ruled out. But over the full year, since there is still a chance of rate cuts, we maintain a bullish stance; yields moving higher could be a buying opportunity.

The Fed’s latest research shows that the break-even employment growth for the United States may fall to 0 in 2026.

(1) What is break-even employment/nonfarm growth?

Break-even employment growth refers to the number of job openings that must be added each month (which can be used as a proxy for newly added nonfarm jobs) in order to keep the unemployment rate stable. These newly added jobs are mainly used to absorb growth in potential labor—i.e., they just cover the number of people who enter the job market each month to look for work.

When monthly employment growth exceeds the break-even level, the unemployment rate is expected to fall; conversely, if employment growth keeps staying below the break-even level, the unemployment rate will rise.

(2) Currently, why has the break-even level of employment fallen to around 0?

The Fed’s estimates show that historically, the break-even nonfarm level peaked in the 1970s at nearly 200k. After that, it trended downward, remaining above 80k after 2010. Even in 2020 during the COVID-19 pandemic, it reached 50k. But in 2026, this number may fall to around 0.

The main reasons behind it are a decline in immigration and population aging. The former reduces the potential labor force base entering the employment market, and the latter means the proportion of people willing to look for work is also falling.

Potential labor growth is roughly equal to total population multiplied by the labor force participation rate:

On the one hand, in 2026, international net immigration may fall sharply or even decline abruptly, causing the U.S. overall population growth rate to drop to the lowest level since 1951. The U.S. Bureau of Labor Statistics (BLS) 1–2 month reports show that in 2026 the annualized population growth rate is only 0.4%, while in 2020 during the pandemic, the population still grew 0.5%.

On the other hand, the labor force participation rate has been declining steadily in recent years, further dragging down labor force growth, which is mainly related to population aging. The latest March 2026 data show that the overall labor force participation rate has already fallen to a new low in recent years, with the decline in willingness among older groups being the main drag.

(3) Policy implications for the Fed

First, in the short term, the risk of unemployment rising is lower, giving the Fed a longer observation window to avoid cutting rates.

The Fed currently pays a high level of attention to employment. Because nonfarm noise has increased (greater volatility between months and more downward revisions to prior readings), the unemployment rate is the indicator the Fed likes more. Over the past year or so, monthly newly added nonfarm jobs have deteriorated severely. From 2025 to date, there have been 6 instances of negative monthly growth. Market and Fed concerns about employment have risen as a result. But when break-even employment falls to 0, it implies that in theory, as long as monthly newly added nonfarm jobs do not keep posting negative growth, there is no upward trend risk for the unemployment rate. The resilience of the labor market is stronger than previously expected. That means the Fed does not need to rush to cut rates in the short term; it can wait longer and observe how the situation in the Middle East affects U.S. inflation and the economy.

Second, in the medium term, unemployment stabilizing does not mean the economy is safe, nor is it the Fed’s ultimate demand. If break-even employment falls to 0, it means potential economic growth is down sharply and the endogenous pressure on inflation is relatively low. Instead, the Fed would need to pursue higher nominal growth by driving down unemployment and increase the pace of rate cuts.

However, if unemployment stabilizes at the current level without worsening, it will not affect the Fed’s final rate-cut decision. The Fed’s ultimate goal for employment is “full employment,” not a particular specific unemployment rate. As long as inflation is stable, in theory, the more employment the better and the lower the unemployment rate the better. Currently, break-even employment falling to 0 behind it reflects weak population growth. If labor productivity does not improve, the U.S. potential growth rate will trend lower. In addition, current hiring demand is also relatively weak. With both supply and demand soft, wage growth is low, and the endogenous pressure on inflation is not large.

Against this backdrop, an unemployment rate of around 4.4% will not be the Fed’s preferred level. As long as inflation remains controllable going forward, the Fed will likely continue to cut rates, push down unemployment, and target higher nominal economic growth.

(4) Impact on the U.S. Treasury market outlook

In the short term, yields will continue to trade in a high-range, volatile pattern. Another round of upward upward pressure is not ruled out. With near-term unemployment pressures not too big and oil prices still high, the Fed has more time to observe, making it harder for Treasuries to surge higher. Given that the current market’s negative feedback is the main transmission mechanism forcing Trump to either compromise or escalate attacks, another round of a major adjustment in financial assets is not ruled out before the situation ultimately stabilizes, including an upward move in Treasury yields.

But for the full year, we still maintain a bullish stance on Treasuries. Yield increases are a buying opportunity. The room for further rate cuts still remains, and after the disturbances end, Treasury yields are likely to return to a downward trend.

U.S. inflation rising beyond expectations; U.S. economic growth rising beyond expectations—leading the Federal Reserve to keep tightening monetary policy; the dollar appreciating sharply; Treasury yields rising; U.S. stocks continuing to fall; commercial bank bankruptcy crisis; and currency and debt crises emerging in emerging markets. A U.S. recession worse than expected leads to a liquidity crisis in financial markets, forcing the Fed to pivot toward easing. The European energy crisis worse than expected leads the euro area economy into a deep recession, global markets into turmoil, external demand shrinking, and policy facing a dilemma. Global geopolitical risks intensifying; China-U.S. relations deteriorating beyond expectations; uncontrollable factors appearing in commodities and transportation; the degree of deglobalization deepening further; supply chains continuing to be disrupted; and competition for related resources worsening.

Name of the securities research report: 《Break-even nonfarm employment falls to 0—what does it mean? — U.S. Treasury weekly perspective (16)》

External release date: April 6, 2026

Report publishing institution: CITIC Securities Co., Ltd.

Report authors:

Qian Wei SAC No.: S1440521110002

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