US Economy: The Immigration Enigma
Higher immigration does not fully account for recent labor market resilience
- Higher immigration has caught on as a potential explanation for strong growth and resilient labor data
- In our view, there is some evidence of faster immigration, but recent estimates from the Congressional Budget Office (CBO) appear to be on the high-end of a reasonable range
- Immigration boosts trend job gains; it can partially but not fully explain the outperformance of nonfarm payrolls compared with household survey employment
- We plan to follow up this note with another piece exploring implications for wage growth, inflation, and the prospects for a soft landing
Diverging Labor Market Survey Results
The United States has witnessed strong growth and tight labor markets lately. Interestingly establishment survey and household survey, two separate measures of labor market, have diverged significantly. Establishment survey or ‘Headline NFP’ has pointed towards robust growth, while household survey has underperformed. Higher immigration has caught on as a potential explanation for the same.
A CBO report earlier this year made the case that official population estimates from Census have underestimated the recent surge in immigration by around 3.5mn in the last 2 years i.e. 2022 and 2023. This assertion quickly caught on as both a market and Fed consensus, which has led to higher estimates of trend employment and GDP growth and offered an ex-post justification for 2023’s “soft landing” of disinflation amid broader economic resilience.
In our view, there is some evidence of faster immigration, but estimates from the CBO (based on Department of Homeland Security measures) appear to be on the high-end of a reasonable range. Outside of DHS and Census data, potential signs for a surge in immigration are mixed. Balance of payments data on remittances to Mexico and northern triangle countries from the United States support the higher immigration estimates, while housing data appears to be inconsistent with CBO’s narrative. In addition, state level labor data also suggest that there is almost no relationship between the foreign-born population share and the gap between state-level household and establishment survey employment estimates. Alternative labor market measures and industry mix of job gains also offers evidence against a pure labor-supply shock.
Overall, we see some evidence of faster immigration growth, but there are also reasons to question the CBO’s estimates of a rapid rise. Immigration may partly explain the divergence between household and establishment survey employment estimates, however granular labor data lead us to question whether immigration is the full explanation.
For a more in-depth analysis, read our full report.
Contributor
Aichi Amemiya
Senior US Economist
Jeremy Schwartz
Senior US Economist
Ruchir Sharma
US Economist
David Seif
Chief Economist for Developed Markets
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