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

（Source: CSC Research, Overseas & Major Asset Classes Team）

The Fed’s research shows that, by 2026, the required employment growth to reach breakeven—or the figure may fall to 0. The reasons include: fewer immigrants (a smaller population base) and population aging (lower labor force participation).

Policy implications for the Fed:

① In the short term, if breakeven employment really is 0, that means that even though the current nonfarm situation is very weak, as long as it does not persist in negative growth, the unemployment rate will not rise in a sustained upward trend. Under disruptions such as an oil price shock and a change in chair, this would give the Fed the ability to observe rather than cut rates, aiming for a longer window of time.

② In the medium term, stabilizing the unemployment rate is not the Fed’s ultimate goal, nor does it mean that the economy is doing well. If breakeven employment falls to 0, it means the economy’s potential growth rate has dropped significantly, and there is not much endogenous pressure from inflation. Instead, it would require the Fed to increase the pace/extent of rate cuts—pushing down the unemployment rate—to pursue higher nominal growth.

Impact on U.S. Treasury yields:

① In the short term, yields continue to trade with volatility at high levels; it cannot be ruled out that there will be another round of upward pressure.

② But over the full year, because there is still a chance of rate cuts, we maintain a bullish stance; yields rising could actually be a buying opportunity.

The Fed’s latest research shows that employment growth implied by the U.S. breakeven level may fall to 0 in 2026.

(1) What is breakeven employment / nonfarm growth?

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

When monthly employment growth exceeds the breakeven employment growth level, the unemployment rate is expected to fall. Conversely, if employment growth remains continuously below the breakeven level, the unemployment rate will rise.

(2) Why does the current breakeven level for employment fall to around 0?

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

The underlying reasons are mainly: declining immigration and population aging. The former reduces the potential labor force base entering the employment market, and the latter means the share of people willing to look for work is also declining.

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

On the one hand, in 2026, international net immigration may decline sharply or drop rapidly, causing the U.S. overall population growth rate to fall to the lowest level since 1951. According to the U.S. Bureau of Labor Statistics (BLS) reports for January–February 1-2, the annualized population growth rate in 2026 is only 0.4%. In 2020 during the pandemic, the population still grew by 0.5%.

On the other hand, labor force participation has shown a持续 downward trend in recent years, further pulling down labor force growth. This is mainly related to population aging. The latest March 2026 data shows that the overall labor force participation rate has already fallen to a new low in recent years; among the factors, the decline in willingness among older groups is the main drag.

(3) Policy implications for the Fed

First, in the short term, the risk of the unemployment rate rising is lower, giving the Fed more time to observe without cutting rates.

The Fed currently pays a relatively high level of attention to employment. Because nonfarm noise has increased (greater volatility between months and multiple revisions to the prior value downward), the unemployment rate is a metric the Fed likes more.

Over the past year or so, monthly nonfarm job additions have deteriorated severely. From 2025 to date, there have been six instances of monthly negative growth. Market and the Fed have increased concerns about employment. But with breakeven employment falling to 0, it means that in theory, as long as monthly nonfarm job gains do not keep falling into negative growth, there is no trend-up risk for the unemployment rate. The labor market’s resilience is stronger than previously expected.

That way, in the short term, the Fed can avoid cutting rates in a hurry and wait longer to assess the impact of the situation in the Middle East on U.S. inflation and the economy.

Second, in the medium term, stabilizing the unemployment rate does not mean the economy is fine, and it is not the Fed’s ultimate goal. If breakeven employment falls to 0, that implies a large drop in the economy’s potential growth, and lower endogenous inflation pressure. Instead, the Fed would need to pursue higher nominal growth by pushing down the unemployment rate and to increase the力度 of rate cuts.

However, if the unemployment rate stabilizes at the current level without worsening, it will not affect the Fed’s final decision to cut rates. The Fed’s ultimate goal for employment is “maximum employment,” not any specific unemployment rate. As long as inflation remains stable, in theory, the more employment the better and the lower the unemployment rate the better. Consider a few phenomena:

First, an unemployment rate around 4.4% is itself relatively high, making it difficult to be confirmed as maximum employment;

Second, currently, breakeven employment has fallen to 0 because population growth is weak. If labor productivity does not improve, the U.S. potential economic growth rate will trend lower;

Finally, current hiring demand is also rather weak. With weak supply and weak demand, wage growth is not rising, and endogenous inflation pressure is not large.

Against this backdrop, an unemployment rate around 4.4% will not be a level the Fed is satisfied with. As long as subsequent inflation is controllable, the Fed will most likely choose to continue cutting rates, pushing down the unemployment rate to pursue higher nominal economic growth.

(4) Impact on U.S. Treasury yield trends

In the short term, yields continue to swing in a wide range at high levels, and another round of upside shock cannot be ruled out. Near-term unemployment pressure is not large, oil prices are still high, and the Fed has more time to observe—so U.S. Treasuries are less likely to surge sharply. Given that the current negative feedback in financial markets is the main transmission mechanism forcing Trump to either compromise or increase attacks, it cannot be ruled out that before the situation ultimately eases, there will be another round of major adjustments in financial assets, including upward pressure on U.S. Treasury yields.

But over the full year, we still maintain a bullish stance on U.S. Treasuries. Yields rising would be a buying opportunity. There is still a chance for additional room to cut rates; after the disruption ends, U.S. Treasury yields should return to a downward direction.

Source of the article

Title of the securities research report: 《Breakeven nonfarm falls to 0—what does it mean?—U.S. Treasury weekly view (16)》

External release date: April 6, 2026

Report issuing organization: CITIC Securities Co., Ltd.

Report authors: Qian Wei

Practicing certificate number: S1440521110002

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