Another negative month? TPS layoffs raise the stakes

August 27, 2026

The August employment report may be unusually difficult to read. Payrolls could take a hit from the loss of work authorization for Haitian and Syrian workers. The Temporary Protected Status (TPS) lapsed for roughly 330,000 immigrants on July 27; about 200,000 were in the labor force. 

Firms were compelled to sever workers covered by TPS work permits, which could show up as a large blow to payrolls but not an increase in the unemployment rate. Workers without other forms of work visas are not eligible for unemployment insurance or counted as a part of the labor force. Hence, the unusually low level of unemployment insurance claims in response to the layoffs.

No one knows how many TPS workers were actually working or let go. Those who had alternative working status, which included asylum, were likely small relative to the total. The Bureau of Labor Statistics (BLS) has no explicit methodology for tracking the TPS layoffs as they do for striking workers, which can have a similar effect in that it shaves jobs but does not add to the unemployment rate. 

The most affected industries are healthcare (eldercare and nursing homes) and leisure and hospitality. We also saw several meat packers close due to a shortage of beef stocks, rather than workers. The two trends could collide in August.  

The sheer size of the pool of workers affected suggests that we could easily see another negative month for payrolls in August. That is prior to the effects of a rebound in local government education payrolls, which were held down due to a seasonal adjustment problem in July; that should reverse in August. 

Another hurdle to separating the noise from the signal in August is the benchmark revisions to the data. The current quarterly data that feeds into the revisions suggest a modest upward revision of around 200,000 to 2025 payrolls. Last year, the preliminary estimate was a sharp downward revision of -911,000 to the data, which essentially wiped out most employment gains for the year. (The final revision was -861,000.) More administrative data is due out on Friday of this week. 

Lastly, the initial August payroll release has been notoriously bad and subject to revisions. It has underperformed July much of the last decade. The initial miss averages 50,000. However, the slower pace of job growth that we have seen over the last year and a half suggests that the “initial” miss by the report could be less this year.

A loss in payrolls? 

On net, payrolls could fall anywhere from 50,000 to 100,000. That is assuming an underlying payroll rise by at least 50,000 before the blow to TPS workers. Public sector payrolls should bounce back with school starting up again. Some workers likely were shed ahead of the layoffs and showed in the weak print for leisure and hospitality earlier in the summer. 

Healthcare and social assistance could shed jobs this month due to the loss of TPS workers; leisure and hospitality will likely suffer another setback. 

Professional business services, which has posted gains in recent months, should continue to add modestly to employment. The goods sector is expected to remain supported by an increase in specialty nonresidential construction activity, which is buoyed by data centers. Manufacturing and mining likely added jobs as well. 

Average hourly earnings are expected to rise 0.3%, with fewer low-wage jobs buoying the average gains. That would translate to a 3% increase in average hourly earnings from a year ago, the weakest year-on-year gain since February 2020. Average hours worked are expected to hold steady at 34.3 hours per week. 

The Atlanta Federal Reserve Bank's Wage Growth Tracker suggests that underlying wage growth has cooled but not cracked. The tracker, which follows individual workers in the Current Population Survey and measures the median year-over-year change in hourly wages for workers, edged up to 3.8% in July from 3.6% in June. Wage growth for job stayers rose to 3.6%, while job switchers saw a faster 4.4% gain. That is a cleaner read on continuing workers’ wage gains than average hourly earnings, which may look better in August due to the loss of lower-wage TPS workers from payrolls. 

The message is that wage growth is no longer overheating as it did in 2021-23, but labor costs remain firm enough to complicate the outlook. Escalating benefit costs are another issue that is picked up by the Employment Cost Index. Indeed, there is evidence that rising benefit costs are now eating into annual wage gains. Some measures estimate a double-digit pace surge in 2027, another milestone. 

That is buoying service sector inflation, although it shows up in the healthcare and drug costs as opposed to health insurance costs in the various inflation measures. The Bureau of Labor Statistics methodology for the consumer price index attempts to track the effect that rising insurance and copays have on the healthcare ecosystem, which means the line for healthcare insurance looks suspiciously benign. 

Little impact on unemployment 

The unemployment rate, which is derived from the household survey, is expected to remain unchanged at 4.1%. The loss in workers due to TPS layoffs should not show up in the official unemployment rate as those workers have lost their legal right to work. Participation in the labor market is expected to remain suppressed. Aging demographics and a loss of foreign-born workers, who tend to participate at higher rates than native-born, are holding down overall labor force participation rates, even as prime-age participation stays buoyant. 

The underemployment rate or the U6 held at 7.9% in July, which is still elevated. It will likely remain there. The average duration of unemployment has been edging lower, but the ranks of those unemployed more than 27 weeks remain elevated relative to pre-pandemic norms. The unemployment rate among new college graduates is elevated as well. The "low hire, low fire" narrative on the labor market has not changed much.