Immigration is fueling US economic growth while politicians rage
While the rising number of immigrants in the U.S. has sowed division among politicians across the country — and stoked angst among a swath of voters — there’s one place where almost everyone seems on the same, upbeat, page: Wall Street.
Last month, the nonpartisan Congressional Budget Office (CBO) calculated that immigration will generate a $7 trillion boost to gross domestic product over the next decade. The agency came to that conclusion after incorporating the recent surge in immigration.
The CBO release spurred a flurry of fresh number-crunching among investment bank economists, to account for the boost those new comers are giving to the labor force and consumer spending. Goldman Sachs Group Inc. revised up its near-term economic growth forecasts Sunday. JPMorgan Chase & Co. and BNP Paribas SA were among banks that acknowledged the economic impact from surging immigration in recent weeks.
“Immigration is not just a highly charged social and political issue, it is also a big macroeconomic one,” Janet Henry, global chief economist at HSBC Holdings Plc, wrote in a note to clients Tuesday. No advanced economy is benefiting from immigration quite like the U.S., and “the impact of migration has been an important part of the U.S. growth story over the past two years.”
Morgan Stanley economists Sam Coffin and Ellen Zentner noted this month that faster population growth fueled by immigration lends itself to stronger employment and population estimates than initially thought — though added that the full effect might not be captured by official data.
It’s hard to pin down the exact scale of the inflows of foreign-born people, thanks to many entering without visas or other documentation. But CBO statisticians incorporated data from U.S. Customs and Border Patrol to come up with their higher projected net immigration, according to Morgan Stanley analysis.
Goldman estimates that immigration was around 2.5 million in 2023, a figure that is far above the 1.6 million implied by the change in the foreign-born population in the official household survey from the Census Bureau.
The positive tone among economists contradicts that seen on the campaign trail, as a surge in the number of undocumented immigrants entering the U.S. through the southern border stokes political strife. The share of Americans who see immigration as the most important problem facing the U.S. is now matching a record high in data going back four decades, according to a recent Gallup poll.
The recent boost from immigration is the result of both more legal immigrants as the U.S. goes through unprecedented visa backlogs and the surge in illegal border crossings. The nation’s 32.5 million immigrant workers now account for roughly one in five U.S. workers, a record-high in government data going back almost two decades.
To be sure, the connection between the higher influx of foreign workers and the rapid post-pandemic recovery has been noted by economists and policymakers alike for some time now. Federal Reserve Chair Jerome Powell has repeatedly cited immigration as one of the reasons behind strong economic growth.
In a reference to the role being played by higher labor supply, Powell pointed on Wednesday to “a strong pace” of immigration as helping on that front.
“The overall picture is a strong labor market — the extreme imbalances we saw in the early parts of the pandemic recovery have mostly been resolved, you’re seeing high job growth, you’re seeing big increases in supply,” Powell said in his press conference Wednesday. Fed policymakers lifted their growth forecast for this year to 2.1% from 1.4%, their median estimate showed.
Immigration has been “important to the surprising pace of job growth, even alongside a modestly increasing unemployment rate,” according to JPMorgan chief U.S. economist Michael Feroli. “This, in turn, has been one factor behind surprisingly strong overall income and output growth.”
While there are warnings that increased immigration will undercut wages and conditions in some industries — the unemployment rate rose to a two-year high in February — businesses are ramping up calls for changes to bring in more workers through legal channels.
Almost 9 million positions are open across the economy, equal to 1.4 jobs for every job-seeker. Foreign-born workers made up a record 18.6% of the civilian workforce in 2023 and the U.S. approved a record number of work authorizations in the fiscal year through last September.
Immigration is “very policy sensitive,” Feroli cautioned, advising against extrapolating out bigger numbers beyond the end of this year. After all, policy could change after the November election, he noted.
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