U.S. Labor Force Growth Set to Stall Over Next Five Years as Retirements and Policy Shifts Take Toll

A top Wall Street strategist has issued a stark warning that the U.S. labor market could experience zero growth in workers over the next five years, raising concerns about the trajectory of the broader economy. David Kelly, chief global strategist at JPMorgan Asset Management, highlighted the compounding effects of an aging population and shifting immigration policies as key factors that could stall workforce expansion [1]. He emphasized that this labor stagnation would have significant implications for the Federal Reserve, investors, and the overall economic outlook [1].

Recent employment data supports these concerns. The latest jobs report showed a sharp downward revision in job creation for May and June by 258,000 positions. In July, just 73,000 jobs were added—far below the expected 110,000. The average monthly job gain over the past quarter dropped to 35,000, while the unemployment rate climbed to 4.2% [1]. These numbers reflect a tightening labor market, with the labor force participation rate declining from 62.65% in July 2024 to 62.22% in July 2025, representing a loss of nearly 1.2 million people aged 16 and over who are working or actively seeking employment [1].

Kelly attributed about half of this decline to Americans retiring and the other half to a drop in labor force participation among working-age individuals between 18 and 54. He pointed to Census projections suggesting that the working-age population could contract by over 300,000 in the year ending July 2026 and continue to shrink at a similar pace through 2030 [1]. The retirement wave, combined with recent immigration policy changes, is further reducing the available labor supply and limiting the economy’s growth potential.

The shrinking labor force poses a dilemma for the Federal Reserve, which is under increasing political pressure to lower interest rates. Kelly warned, however, that easing monetary policy in a structurally tight labor market could exacerbate inflationary pressures rather than boost economic growth. He emphasized that with the economy operating near full employment and the workforce projected to grow little or not at all, any rate cuts must be approached with extreme caution [1].

Kelly noted that U.S. economic growth has historically averaged 2.1% annually since the start of the 21st century, largely driven by a 0.8% annual increase in the workforce. He argued that if the labor force ceases to grow, the economy will likely expand at a much slower pace, without the risk of triggering inflation [1]. For investors, this means tempered expectations for rapid economic gains or a bull market fueled by loose monetary policy.

Kelly urged policymakers to consider reforms, particularly in immigration policy, to counteract the labor force contraction and support long-term economic stability. He emphasized that without such measures, the U.S. could face a period of prolonged stagnation, with little hope of reversal. His analysis underscores the critical need for strategic interventions to address the structural challenges facing the labor market and the broader economy [1].

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[1] https://fortune.com/2025/08/04/warning-economy-interest-rate-cuts-no-growth-workers-next-5-years/